Financial planning, asset management, wealth management, investment management, portfolio management, financial life management, and on and on.
Many people make the mistake of assuming they mean the same thing. A failure to understand the differences between financial services and the advisers that provide them can make it a challenge to find the right adviser for your specific needs.
What’s the difference?
Essentially, there are two main services that an adviser offers: financial planning and/or asset management (also called investment management and portfolio management). While they are two separate services, they are interrelated and both essential for reaching your financial goals.
- Financial planning is a comprehensive assessment of your financial situation and your future goals. It involves creating a financial plan to help you answer important questions such as: How much do I need to save for retirement? What should I do with my 401(k)? How can I fund my kids’ college educations? When should I file for Social Security? Does long-term care insurance make sense?
- Asset management pertains to the investment of your money: building your portfolio, establishing a proper asset allocation, buying and selling securities, rebalancing as needed, etc.
Who does what?
Adding to the confusion is the fact that financial planning and asset management firms are both considered investment advisers and have to be registered as such. They may also have the same designations, such as Certified Financial Planner or Chartered Financial Analyst. However, neither a financial planner nor investment adviser is required to have any designations.
Some firms focus solely on financial planning while others only provide asset management. Also, some financial planners or advisers will directly handle financial planning activities while outsourcing the management of your money.
Other firms, such as Advance Capital Management, do both. We have a team of financial advisers and our own in-house investment team who work together to provide investment advice and help clients make better financial decisions.
Our philosophy is that working with one firm for your financial planning and asset management needs is more convenient and cost-effective. It can help ensure everyone is on the same page. Instead of juggling multiple people and viewpoints, you work with a single firm and strategy.
What services do you need?
Eventually, you will likely need both financial planning and asset management. When and to what degree depends on your age and your wealth.
Younger workers generally may not need consistent financial planning, as their needs are pretty basic – save as much as possible and live below your means.
However, as you age and your financial assets grow, things tend to get more complicated. You have to plan for retirement, buy a new home, save for college, spend more time on your taxes, determine an appropriate withdrawal rate, create an estate, etc.
Ultimately, before you agree to work with any financial professional, do your research. Find out what services they provide and, just as important, how they are compensated for those services. Look at their website for information. If it is unavailable, take a look at their Form ADV, which you can locate on the Securities and Exchange Commission’s website.
Easiest of all may be to contact the adviser directly and tell them what specific services you want. You don’t want to end up paying for more or less than you need.