Do I need a Financial Planner or a Wealth Manager?

When it comes to investing, saving for a better future, or managing your wealth, deciding on whether you should seek the guidance of a financial planner or a wealth manager is critical to be able to best define your financial goals.

It is therefore important to get a better understanding of the different roles a financial planner and a wealth manager play. While both a financial planner and a wealth manager can assist you in picking different investments and diversifying your portfolio based on your requirements, their respective areas of expertise are unique.  

The following information explains what differentiates the professional expertise of a wealth manager from a financial planner and the role they may play in your financial journey. This may enable you to make an informed decision that is best suited to your financial needs and goals.

Wealth Management

What is a wealth management plan?

A wealth management plan is generally suited to people with high net worth. It focuses on preserving your funds and includes the following four components:

  1. Wealth assessment: Wealth assessment is the process of assessing your current net worth and finding ways to manage it efficiently.
  2. Risk tolerance: Risk tolerance refers to the degree of variability in returns that an investor can withstand in their financial planning. Your risk tolerance is a carefully determined metric that is assessed in order to find a suitable path forward to further grow your wealth.
  3. Wealth allocation and retention: Wealth allocation and retention includes strategies to effectively allocate your wealth and retain it in the right financial instruments or assets.
  4. Growth strategies: Lastly, wealth management encompasses growth strategies that focus on growing wealth and creating a larger corpus of wealth.

What do certified wealth managers do and what are their responsibilities?

Certified wealth managers are specialized financial advisors who deal with high net worth clients. Wealth managers cover a host of responsibilities that include wealth management, long-term and short-term financial planning, investment planning, retirement planning, estate planning, tax planning, legacy planning, management of assets, legal advice, and banking services. They primarily work with investors with a high portfolio size.

Requirements to be a certified wealth manager

Chartered wealth managers are certified by the Global Academy of Finance and Management (GAFM). This authority was earlier known by the name American Academy of Financial Management (AAFM).

What is the cost of hiring a wealth manager?

Wealth managers charge a percentage of your assets that they manage (AUM or assets under management). The cost of hiring a wealth manager depends on the kind of services they provide and the size of your wealth, and can start from 1% of AUM and go higher. However, since wealth managers work with high net worth clients, their fees are typically on the higher-end. Wealth managers may also charge a fixed amount or ask for an hourly fee.

Financial Planning

What is a financial plan?

Financial planning consists of comparatively simpler tasks, such as budget planning, or saving for a particular goal, such as buying a house or saving for education. It takes care of the following aspects:

  1. Cash flow: The net amount of cash and cash-equivalents being moved in and out of your account is your cash flow. An example of a steady inflow of cash is the salary you earn. An example of a steady outflow of cash is the mortgage or rent you pay.
  2. Debt management: Loans, credit card dues, etc., can be a setback in your journey to financial freedom. Debt management ensures that your debts are under control and your earnings are in abundance over your debts.
  3. Risk management: Every investor has a unique risk tolerance. Depending on your ability and preference to take risk, risk management can help you find the right investment avenues for growth.
  4. Retirement planning: Retirement is a time when you may no longer have regular income to fall back on. In order to be able to sustain your lifestyle or meet your financial requirements it will be necessary to make appropriate investments during your earning years and plan for your non working years.
  5. Investment planning: Investment planning allows you to earn money on your capital through investments in various avenues such as equities, bonds and property.  With the power of compounding, you can watch your wealth increase over the course of time.
  6. Tax planning: Tax planning is a process of analyzing one’s financial situation (income, investment returns, losses etc.) with a view to reducing one’s tax liability.  Through tax planning, you may be able to reduce your tax liability in a way that facilitates more savings and less taxable burdens.

 What do certified financial planners do?

A certified financial planner (CFP) takes care of many of your money management needs, such as insurance, taxes, estate planning, retirement planning, etc. Unlike a wealth manager who only deals with high net worth investors, a certified financial planner works with low or mid-income investors as well to help them protect and grow wealth.

They assess the current and future monetary needs and help devise a plan to attain the financial goals of investors, apart from helping them lay down SMART (Simple, Measurable, Attainable, Realistic and Time-bound) goals. 

Requirements to be a certified financial planner

To become a certified financial planner, you need to be certified by the Certified Financial Planner Board of Standards, Inc. The approval process includes completing a CFP Board-registered education program, appearing for the CFP exam, passing the CFP Board’s Candidate Fitness Standards, and demonstrating either domestic or apprenticeship experience in financial planning.

What is the cost of hiring a financial planner?

Just like a chartered wealth manager, a certified financial planner also charges a percentage of your assets managed or AUM per year. They may also charge based on an hourly rate or a fixed sum based on the kind of service you need them for. Some financial planners charge a commission from the stock you buy or invest in too.

How is financial planning different from wealth management?

  Financial planning Wealth management
Investor Type Preferred by investors with smaller portfolio sizes. Preferred by investors with higher portfolio sizes.
Approach Follows a goal-based approach. Follows an opportunity-based approach.
Professional involvement A financial planner is passively involved in your financial planning process. A wealth manager is actively involved in managing your wealth.
Objective The main aim is to create wealth with investments and savings. The main goal is to preserve the wealth that exists and grow the corpus.
Major components Consists of cash flow management, portfolio diversification, retirement planning, estate planning, tax planning, budgeting, investment planning, etc. Consists of wealth assessment, risk assessment, wealth preservation, wealth growth, etc.

Should you hire a wealth manager or a financial planner?

Now that we have established the differences between wealth management and financial planning, and understood the roles played by the respective financial advisors, which of these two professionals should you be hiring for your needs?

Seek a wealth manager if you are a large-ticket investor who needs assistance with preserving wealth and optimally managing your wealth and estate.

Seek a financial planner if you have a smaller portfolio size or want to invest a smaller portion of your money to create wealth, and need advice on budgeting, retirement planning, tax planning, etc.

Have you decided what kind of professional suits your requirements the best? Use Paladin Registry’s free match tool to find a vetted financial advisor who is a good fit for your financial goals and needs.

If you need any further clarifications or have any questions, visit Dash Investments or email me at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. In addition, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients. 

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