27 November 2023
The definition of financial advice is quite broad. A student willing to pursue a post-graduate degree (PGDM) might find it challenging to choose a career between financial planning and wealth management. Although both financial planning and wealth management render financial advice, the products offered and the clientele served are entirely different. Financial planning and wealth management are distinct segments within the field of financial advising. Financial planners supervise the financial matters of clients daily, aiming to improve their financial standing. On the other hand, wealth management involves the management of the tangible wealth of clients. Today, we shall explore financial planning and wealth management in depth.
What is Financial Planning?
Financial planning is a systematic process that aligns one’s life objectives with financial resources. It encompasses the management of daily expenses and investments throughout one’s lifetime. Essentially, it involves various financial strategies over time to reach the financial objectives. Consequently, financial planning enables one to assess goals, establish priorities, and allocate funds to attain desired targets within set timeframes. Financial planning consists of diverse activities, such as handling debts, managing cash flow, mitigating risks, and creating an emergency fund. It involves utilising various financial instruments like life insurance, mutual funds, and fixed-income schemes. Furthermore, financial planning aids in preparing for future milestones like education, marriage, home or car purchases, retirement, and more. Additionally, effective tax planning is a crucial element of financial management, helping to preserve one’s hard-earned money.
Benefits of Financial Planning:
What is Wealth Management?
Wealth management involves the dual objectives of safeguarding and expanding one’s wealth over an extended period. Individuals and families possessing significant financial assets, like high-net-worth individuals (HNIs), business executives, and affluent households, engage in this financial approach. In other words, wealth management provides a tailored approach by employing various financial instruments and services. Wealth management is designed to safeguard, nurture, and accumulate further wealth using existing assets, with a focus on long-term financial security. The typical activities within wealth management comprise the identification and optimisation of profit-generating ventures, the utilisation of specialised financial products, the assessment of capital gains, and others. In essence, wealth management enhances one’s financial status by allocating assets effectively.
Benefits of Wealth Management:
Key Differences
Financial planning empowers an individual to attain particular financial objectives. Typically, financial planning focuses on near-term goals, such as accumulating funds for a home down payment or securing one’s retirement. In contrast, wealth management takes a comprehensive perspective, covering every aspect of one’s financial well-being. It is geared towards safeguarding and increasing wealth over an extended horizon. Here’s an overview of the key differences between financial planning and wealth management:
| Parameters |
Financial Planning |
Wealth Management |
|
Area of Application |
Financial planning is suitable for everyone, regardless of their wealth level, focusing on saving and investing to reach specific financial goals. |
Wealth management caters to high-net-worth individuals with substantial wealth, aiming to multiply and safeguard their existing assets. |
|
Objective |
Financial planning involves managing income and expenses to achieve life goals. |
Wealth management oversees accumulated wealth across various assets. |
|
Scope |
Financial planning covers daily expenses, monthly income, savings, tax planning, and creates a financial roadmap to meet financial goals. |
Wealth management focuses on increasing accumulated wealth through high-yield investments. |
|
Client Involvement |
In financial planning, individuals usually follow a plan designed by a financial planner with minimal active participation. |
Wealth management requires active involvement with a wealth manager to optimise investment decisions for wealth preservation. |
|
Management Type |
Active process that involves ongoing monitoring and management of one’s finances. |
Passive process that generally takes place once or twice a year. |
Wrapping Up
The field of financial advising offers a diverse array of opportunities for aspiring PGDM individuals. The choice between financial planning and wealth management can be a pivotal decision, dependent on specific needs and goals. Financial planning, marked by continuous and hands-on supervision, is within reach for a wide spectrum of individuals. It offers a budget-friendly method for attaining financial objectives and improving financial health. Conversely, wealth management, customised for high-net-worth individuals and prosperous households, adopts a more passive approach. It is focused on preserving and growing existing wealth through collaborative and holistic strategies. Ultimately, the choice between financial planning and wealth management hinges on individual circumstances and aspirations. By understanding the nuances of these disciplines deeply, one can make an informed decision.
