Learn the key differences between Financial Planning and Wealth Management - Motilal Oswal
Learn the key differences between Financial Planning and Wealth Management - Motilal Oswal

Learn the key differences between Financial Planning and Wealth Management

Before we go on to learn the key differences between financial planning and wealth management, let us first understand what the concept is all about.

What is Financial Planning?
Financial planning is all about managing your day to day finances to be self-sufficient in life. You may have a monthly income of say Rupees 20,000. You will have to pay rent to the landlord. You will have to pay for your kid’s education. Money is required for buying monthly provisions. You will need to pay your servant. Additionally you need to apportion a part of your earnings towards recreation or entertainment. You need to plan your expenses accordingly. Over and above all these expenses, you need to allocate some money towards your saving for your future or for your retirement. This is when you would seek the assistance of a financial planner, who would assist you in making use of your funds in an optimal manner. Budgeting, cash flow management, and retirement schemes fall under the gamut of financial planning.
 

What is Wealth Management?

Wealth Management is meant for the Higher Net worth individuals or highly rich businessmen. They appoint wealth managers to help them preserve their existing wealth and to help them accumulate even more wealth. Investors take the services of wealth managers to identify core profit-making opportunities. Hence, in a nutshell, you can conclude that wealth Management is a process by which you preserve your existing wealth and try identifying opportunities to accumulate more wealth. Capital gains assessment, risk management, and estate planning are activities that fall under the umbrella of Wealth Management.

Core differences between the two

Now, let us go on to discover the core differences between the two:

Financial planning is more opted by the middle class or the lower-middle-class people, who need financial advice to help them make ends meet while wealth management is chosen by high net worth or the highly elite class of the society. These high worth individuals aim at identifying business opportunities which can either double or triple their existing wealth.

Financial Managers are always in demand and job opportunities for financial managers are abundant. For the wealth managers, there are fewer opportunities while the profession is a much highly paying one.

One does not need existing source of wealth to undertake financial planning as it deals with day to day aspects of managing your finances. Wealth Management needs existing wealth as a platform or a base upon which further capital or investment funds are accumulated.

Financial planning deals with day to day aspects of planning your cash, while wealth management deals with preservation and increase of wealth. Here, cash is not the constraint. Assets like land, property, business corporate offices, high-end furniture, etc. are taken into consideration.

Financial planning does not require active participation by the concerned recipients. It is the advisor who does most of the homework as far as assessing your finances are concerned. While in wealth management, active participation of the concerned recipient is absolutely necessary. To preserve or accumulate wealth, one needs to work persistently.

Having spoken about the differences of financial planning and wealth management on a broader note, let us also discuss some of the key phases where financial planning and wealth management activities are carried out:
 
Learning phase
It first starts with financial management. You learn more about investment strategies, businesses that operate in favor of consumers, allocating your cash in a wise manner, budgeting and lot many. Though you carry out the aforesaid tasks on a day to day basis, you first need to familiarize yourself with how the financial system actually works. Here no wealth management is necessary.
 
With a wise follow-up of procedures pertaining to financial planning, you invariably accumulate assets or create a sizeable amount of wealth. It is at this stage, a proper wealth management strategy actually comes into play.
 
Accumulation phase
Now, you have started applying your investment strategies one by one. Again, you just follow up with a rigorous financial planning methodology. You may not require wealth management at the initial stage. Here, you are at the threshold of amassing wealth. Once this is done, you make use of wise wealth management techniques to preserve your wealth or add more to it.
 
Retirement phase
Now that you have inherited wealth on a large scale, you need to have a proper wealth management system in place. Financial planning now becomes the need of the hour as you need to make the right decisions as to where you want to invest money to further enhance your wealth. This is wise investment planning.
 
Estate planning is another area of wealth management campaign where you have to decide where you invest your money in, with respect to the real-estate market.
In a nutshell, you can conclude that wealth management is a part of financial planning. We have seen the definition, differences and the phases where financial planning and wealth management techniques are extensively used.
 

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