Financial planning can be confusing for many reasons. Terms like diversification, trusts, and risk management are all very daunting for a lot of people. Even subtle differences in services, such as wealth management vs. investment management, are complex, partially because the two services can overlap in some cases.
Wealth Management vs. Investment Management: What is the Difference?
The difference between wealth management and investment management can seem insignificant. However, there are vital disparities.
In general, you should think of wealth management as a broader general approach to financial management. It is comprehensive, and it is generally considered one of the most advanced and complex forms of financial planning.
A wealth manager or financial advisor (sometimes called a consultant) will help with the overall economic picture for clients. Those services go beyond portfolio management. They include things like:
- Retirement planning
- Tax services
- General accounting assistance
- Some estate planning
- Philanthropy advice
- Investment management
Wealth management offers a holistic approach to virtually every financial aspect of someone’s life. However, some wealth managers specialize in just a few areas of wealth management. Some are involved with firms with team members who have their own specialty areas to help you create a comprehensive financial plan.
Why would someone need wealth management?
Wealth management services are appropriate for virtually anyone who wants to get a good handle on their current financial picture and start planning for the future. Examples of those who may want to consult with a wealth management firm might include anyone who has the following financial goals.
- Ensure they have enough funds for retirement
- Minimize personal tax obligations on business income
- Decease estate or inheritance taxes for loved ones
- Setting up a donor-advised fund for charitable contributions
- Ensure you have appropriate insurance protection for your unique family and financial situation
A wealth manager can also help you set financial goals for the future, take full advantage of your investment options to grow your wealth, and a lot more.
What should you expect when you hire a wealth manager?
Because wealth management provides a holistic approach to your entire financial situation, you should expect that your wealth manager will want a lot of information about your finances at the start of your relationship. Example documents that they might want to review may include:
- Retirement plan statements
- Prior tax return information
- Financial statements for any business interests you may have
- Insurance policies that you have in place
- Estate planning documents that are currently in effect
- Investment portfolio information
After your advisor has reviewed your entire financial situation, you can expect that your advisor will want to set up a meeting with you. At this meeting, the conversation will center around your financial goals—both for today and well into the future.
For example, perhaps you want to be sure that you have enough in your retirement plan to not only live comfortably but also be able to pay for your grandchildren’s education. Your financial advisor or wealth manager will not only be able to tell you if you are on track, but he or she will address what steps you can take to stay on track or make your goal a reality. They can also help ensure you decrease costs from investment fees, taxes, and insurance along the way.
Your wealth advisor will work with you to create a comprehensive plan that addresses all of your concern areas, and a lot more.
Advisors can also help you pivot if your plan needs to be adjusted because of an unexpected life change.
Investment management is a subset of wealth management. It focuses almost exclusively on assets, instead of someone’s overall financial picture and planning. A broker or an advisor usually handles investment management—and wealth management advisors can also do investment management and planning as well.
An investment manager will help create financial portfolios for their clients. They will purchase and sell various assets on a client’s behalf, and they suggest which investments might a good option for a specific client. Most deal with securities like stocks, bonds, and mutual funds, but some will also manage real estate portfolios as well.
Examples of the services that an investment manager might provide include:
- Monitoring market trends and providing new recommendations to add to your portfolio
- Making various changes to holdings to account for risk management
- Buying and selling based on an investment plan established with the client
An asset manager will examine your risk tolerance, make recommendations about investments, and help you purchase and hold those investments. Unlike a wealth manager, however, they focus exclusively on your assets—they may not offer advice to help with taxes, general accounting, estate planning, charitable giving, or retirement planning. While you can discuss overall investment goals with your investment manager, their interest in your overall financial picture is much more limited.
Why would someone need investment management?
If you are interested in investing a significant sum of money, but you do not want to spend the time and effort managing it yourself, you may want to hire an investment manager. Tackling IRAs, 401(k)s, brokerage accounts, and the like can be very daunting, especially if you do not have a financial background. It can take considerable time and effort to manage your investments effectively. If you do not want to do that on your own, getting an investment manager may be a good idea.
An investment manager can also take all of your various investments from several sources and combine them into a few accounts. These accounts can be specifically tailored to meet your financial goals—whether they are short or long-term.
An investment manager can also work with your wealth manager in some situations. Those two professionals can give your investments extensive attention, so your money continues to work for you.
What should you expect when you hire an investment manager?
An investment manager will focus almost exclusively on your assets. This person will ask about your goals for your assets and help you find investment opportunities that may be a good fit for your needs.
When you reach out to an investment manager, you can expect that he or she will want to review the following documents:
- Any recent investment statements
- Listings of holdings in real estate
- Information about any non-traditional assets
- Any current financial plans that might be in a place
Your investment manager should have a conversation with you about the types of investments you are interested in developing. Your level of risk tolerance should be assessed as well.
Many investment managers will charge a percentage fee for their services based on the assets they are helping you manage. Most fees are in the range of about 1% to 2%.
Keep in mind that many wealth managers will also play an investment manager’s role in providing services to you. It may be more cost-effective (and financially beneficial) to have your wealth manager also offer investment management services as part of their overall professional services package.
Whether you want a wealth manager or an investment manager will depend a lot on your personal preference.
As you start planning more in-depth for the future, having the full picture a wealth manager provides may be a good idea. However, if you want someone that will simply manage your investments, so you do not have to spend time doing it, an investment manager may be a better option.
Both types of professionals can add a lot of value to our overall financial plan if used correctly.
How Dechtman Wealth Management Can Help
Dechtman Wealth Management offers an array of services for clients, including wealth management in Colorado. We can talk to you about wealth management vs. investment management and help you decide which type of services will likely work best for your unique financial situations. Our team offers both wealth management and investment management, so we can provide insights at both levels of service.
Talk to our team of financial advisors today to learn more about the services we offer and how you can utilize them to better your financial future.
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