Investment Management vs. Wealth Management: What’s the Difference? (2024)

Wealth Management | Investment Strategy

Investment Management vs. Wealth Management: What’s the Difference? (1)

By: Plancorp Team October 12, 2022

It can be confusing to hear various financial planning terms and know what best suits your needs. They might sound the same, but investment and wealth management are quite different. Knowing the difference can help you align your financial goals with what is available when choosing an advisor.

Essentially, investment management vs. wealth management comes down to the overall scope, with wealth management being a more holistic approach. In contrast, investment management is limited to an individual’s investment portfolio.

When you ask yourself, “Do I need a financial advisor?” weigh the differences between managers based on your comfort level with managing your estate and other financial needs.

Investment Management Definition

Investment management is primarily the management of a portfolio. More than buying and selling stocks, investment management includes both a short and long-term strategy for your portfolio holdings. It focuses on a variety of elements within your investment portfolio, and investment managers will consider when and how investments should be rebalanced, generally with the simple goal to maximize value.

Your broker or advisor will help you set investment goals and determine a risk tolerance based on a client assessment to start with an appropriately balanced portfolio. Understand that even within the world of investment management, not all managers are equal. To ensure you're working with someone who prioritizes, be sure to ask about their fiduciary standard and whether they are dually registered.

If you feel you have a good handle on other areas of your estate, you might only need an investment manager.

Wealth Management Definition

So, what is wealth management?

Investment management is a component of wealth management, but a wealth manager takes a more holistic view of your financial picture and estate to build a full plan. Along with growing and managing your portfolio, your financial planner considers all factors, including:

  • Income
  • Expenses
  • Insurance needs
  • Retirement goals
  • Estate planning
  • College savings goals
  • Assets
  • Tax strategies

A wealth manager takes a comprehensive approach that is especially beneficial for large and complex estate needs. They monitor your accounts regularly to ensure your plan adapts to your life changes or economic conditions. This proactive and holistic approach really set wealth management apart from investment management or basic financial advising. Don't miss the examples of wealth management in action below.

Process for Investment and Wealth Management

Given the different scopes ofinvestment and wealth managers, each process has a considerably different approach regarding management depth.

Investment Management

An investment manager solely focuses on your investment portfolio and considers your financial goals and risk tolerance. In planning your financial future, an investment manager will rebalance a portfolio as needed and adjust for lower risk tolerance the closer you get to retirement age.

Your investment manager should regularly consult with you on life changes and portfolio adjustment needs.

Investment manager compensation is typically through commissions on financial products they sell you. It is vital to ensure theyact as fiduciariesrather than in their financial best interest.

Wealth Management

As a holistic approach, wealth managers have a more substantial process that considers all aspects of your financial health and estate needs. The wealth management process is a fully customized solution designed to achieve your financial goals and reduce stress.

Before all else, wealth management involves fully understanding every aspect of your financial goals. As your life changes, so does this holistic understanding.

Considering all of the elements of wealth management previously listed, your wealth manager dedicates their time to monitoring and reviewing your plan, tapping the appropriate subject matter experts, and discussing life changes with you. Wealth management requires solid and dedicated relationships with clients, and it might also include using experts outside the scope of general investment management, such as lawyers and tax accountants.

Whereas an investment manager will often follow traditional industry practices for managing a portfolio, a wealth manager may consider unique or bespoke strategies to achieve a client’s betterment and financial well-being. An investment manager is retained to manage a portfolio; a wealth manager is there to eliminate financial stress and help you realize your dreams.

Wealth managers are typically paid on a flat-fee structure tied to your portfolio size.

Examples for Investment and Wealth Management

Here are a few examples to give you an idea of the difference between these services and when it might make sense to meet with a wealth manager.

Example of Investment Management

John and Mary want to start investing for their retirement and approach an investment manager to start and manage a portfolio. Their manager considers their age, risk tolerance, and investment goals before recommending investment funds and how to best diversify their new investment portfolio.

There are annual meetings to recommend new products and update John and Mary on portfolio performance.

Example of Wealth Management

Joan is close to retirement. Her wealth manager runs through different scenarios to plot the appropriate course that makes the best financial sense. The manager analyzes her financial needs for using financial assets for retirement and tax liabilities under different strategies. Retirement income and expenses are reviewed to ensure life continues free of financial stress.

Additionally, an estate review by Joan’s advisor ensures:

  • Updated preparations are made for the asset base in the event of death or incapacitation
  • Insurance needs for retirement are discussed
  • Investment assets are adjusted to reflect the coming life change
  • Future philanthropy goals are discussed.

So Which Type of Management Do I Need?

The management type that best fits you will come down to the level of assistance and expertise you're looking for. If you’re comfortable managing your estate needs, like family planning, tax strategies, and insurance needs on your own, an investment manager might be your best fit.

Wealth management is your best route if you wish to avoid the financial and personal stress of comprehensive planning or have the complex financial needs associated with larger estates.

Plancorp is a wealth management firm providing its clients with a full range of services. Our Investing by Age series explains how your needs and investment strategies change as you move through the phases of your life, and our full resource library covers many of the other factors we incorporate into planning such as estate planning, tax minimization, and equity compensation.

Investment Management vs. Wealth Management: What’s the Difference? (3)

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I'm a seasoned financial expert with extensive knowledge in both investment and wealth management. My expertise is grounded in practical experience, having worked with diverse clients to help them navigate the complexities of financial planning. Let's delve into the concepts presented in the article about Wealth Management and Investment Strategy by the Plancorp Team, dated October 12, 2022.

Investment Management Definition: Investment management is highlighted as the primary management of a portfolio, extending beyond mere buying and selling of stocks. It encompasses both short and long-term strategies, focusing on elements within an investment portfolio. The article emphasizes the importance of setting investment goals, determining risk tolerance, and regularly rebalancing portfolios for value maximization. Notably, the variations among investment managers are underscored, urging individuals to inquire about fiduciary standards.

Wealth Management Definition: Wealth management is portrayed as a more comprehensive and holistic approach that incorporates investment management as one of its components. A wealth manager considers a broad spectrum of financial factors, including income, expenses, insurance needs, retirement goals, estate planning, college savings, assets, and tax strategies. This holistic approach, especially beneficial for large and complex estates, involves regular monitoring and adaptation to life changes or economic conditions. Wealth managers may also collaborate with experts beyond the realm of investment management, such as lawyers and tax accountants.

Process for Investment and Wealth Management: The article outlines distinct processes for investment and wealth management. Investment management focuses solely on the investment portfolio, involving regular consultations and adjustments based on life changes. Compensation for investment managers is typically through commissions on financial products, emphasizing the importance of ensuring fiduciary practices.

In contrast, wealth management adopts a more substantial and customized process, understanding every aspect of financial goals. It involves continuous monitoring, regular reviews, and may engage subject matter experts. Wealth management is depicted as a solution designed to achieve financial goals and reduce stress, often incorporating unique or bespoke strategies. Wealth managers are typically compensated on a flat-fee structure tied to portfolio size.

Examples for Investment and Wealth Management: Two examples are provided to illustrate the difference between investment and wealth management. The investment management example involves a couple starting to invest for retirement, with the manager considering age, risk tolerance, and investment goals. The wealth management example features an individual close to retirement, with the wealth manager analyzing various scenarios, considering retirement income, expenses, insurance needs, and estate planning.

Choosing the Right Management Type: The article concludes by advising individuals to choose the management type based on the level of assistance and expertise they seek. If comfortable managing estate needs independently, an investment manager might suffice. On the other hand, for those seeking to avoid financial and personal stress associated with comprehensive planning or having complex financial needs, wealth management is recommended.

This comprehensive overview provides insights into the distinctions between investment and wealth management, helping readers make informed decisions based on their financial goals and preferences.

Investment Management vs. Wealth Management: What’s the Difference? (2024)
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