Woodstock Financial Advisor – Third Act Retirement Planning —

Investment Management vs Wealth Management: Which is Best?

Investment Management vs Wealth Management: Which is Best?

This is an odd way to phrase the question, because the answer is somewhat dependent on a person’s situation. Some people may not benefit as much from wealth management as they would from investment management. So we’re going to explain what both investment management and wealth management are in this article.

Investment Management

Investment management is specifically focused on portfolio or asset management. It is not as all-encompassing as wealth management.

Some of the things that a professional would do for you as an investment manager would be to evaluate your portfolio and then recommend changes that are aligned with your goals. They’ll consider both risk and financial goals in order to determine what investments are right for you. Do you need to take more or less risk in order to reach your goals? What type of risk do you need to take to reach your goals? These are just two of the questions that investment management would address for an individual.

Investment management involves talking with the investor, judging their comfort with various levels of risk, and then going in and developing an investment strategy, usually using securities. Securities are stocks, bonds, mutual funds, and ETFs. These stocks and bonds can be from all over the world. The amount of money being invested isn’t relevant here—it’s the service that’s being provided. Investment management is valuable for small or very large accounts. The investment management services that we provide here at Third Act Retirement Planning for our clients are not as comprehensive as the services that we provide for our wealth management clients.

Our investment management clients are people with assets that we’re managing from $500,000 all the way up to $1 million, or for people with incomes from typically $150,000 all the way up to say $300,000. People with portfolios at $1 million-plus, or people with incomes above $300,000, are going to be classified as wealth management clients for our firm. For investment management services, we provide two meetings per year, during which we review their portfolio, which includes looking not only at their performance but also how their money is currently invested.

Review of Holdings

We provide a thorough, detailed explanation for our clients. We want them to know specifically which countries they’re in, the sectors of the different stock markets that they’re invested in, as well as the duration on the bonds. We also look at the credit risk of the bonds. We look at the size of the stocks, whether they’re small-cap, mid-cap, or large-cap. Additionally, we’ll explain to our clients whether or not their portfolio has value blend or growth, and if so, how much of each. We take a very detailed look at how the portfolio is invested. And of course we also look at the performance. We go over what the performance has been year-to-date, what the performance has been for one year, five years, 10 years, so they’re able to see how their money has grown and also what happens to their money when there are big market corrections.

Risk Assessment 

At the portfolio review, we also ask questions to make sure that we’re still understanding the amount of risk that the client wants to take. We explain to the client how much risk they’re currently taking. We discuss with the client how their portfolio would have performed over previous market crashes. We really want them to understand the risk that they are taking, so we explain it in the best way we know how. 

Understand and Lower Fees

Finally, another part of the services of investment management is to look at the fees of the investments that we put their money into. Commonly, one of the most direct correlations to mutual fund and ETF performances are the internal expense ratios. These are fees that are paid to the money managers or the companies that run the funds or indexes. So another part of investment management is looking at the different investment options out there and choosing ones out that are low cost and low expense, which means we can provide our clients with a better long-term performance. We also look at how their account is allocated: how much is in foreign bonds, how much is US bonds, how much is in US and foreign stocks, and how much is in gold or real estate. And we go over that with them on a pie chart.

Financial Plan

In addition to the annual portfolio review we do for our investment management clients, we also provide a retirement planning or financial planning meeting. In this meeting, we look at how the client is doing with their financial plan, and we update the plan each year. At the end of this meeting, we’ll give the client what we believe is the percentage probability that they will not outlive their money and achieve the financial goals that they have set in their financial plan. We look at everything in this plan, including Social Security, net worth, liabilities, investment flows and their financial goals. 

Reviewing their goals is very important, because we enter those as expenses in the overall plan, with dates, so we can make sure the plan can uphold them. Another very important thing that we do in our financial planning is to test our clients’ plans under market crashes to make sure that they can still reach their goal even if we have 50% drops in the global stock market, as we saw happen in the financial crisis of 2008.

Wealth Management

Now let’s turn to wealth management services. Wealth Management includes everything that investment management services include, plus more. To review, investment management services at our firm includes financial goal-setting, portfolio and investment analysis, investment recommendations, ongoing investment management, retirement and financial planning, and two meetings per year, one to review the portfolio and one to review the financial plan. With our wealth management services, we include all of those services, as well as income tax planning, insurance analysis, and estate planning reviews.

Wealth management is much more holistic and encompassing than just investment management.

Wealth management is much more comprehensive and is usually for people with more money,

because that’s typically when you get into trust services. People that want and need to set up a trust are usually those people with more assets. So we begin to look at what type of trust may be appropriate, what are some tax minimization and estate planning strategies that we can put in place as net worth increases. We also look at insurance options, and review their current insurance situation with them. 

When you’re looking at wealth managers, the top credentials that you’ll see are a Certified Financial PlannerTM Practioner (CFPR), a Chartered Financial Analyst (CFAR), and a Personal Financial Specialist.

I myself am a CFP(R).

At our firm, we have three meetings in a typical year with our wealth management clients, sometimes more. In a typical year, we will have a portfolio review, financial plan review, and then a tax planning meeting. Of course, we also will go over employment benefit planning, education funding planning, net worth and cash flow review, and life planning, along with an insurance needs analysis, and estate planning review.

We’re not attorneys, so of course we don’t actually do estate planning for our clients. However, when you’re working with wealth managers, such as our firm, Third Act Retirement Planning, you’ll be working with a whole team of people that help clients with all their needs. We have a CPA that does our clients’ tax returns. We have attorneys that put together trusts and wills, and any other types of estate planning documents that our clients might need. We have a health insurance advisor to work with clients on Medicare planning and health insurance. We also have our life insurance group to help reduce taxes and set up life insurance. We also have two different teams that help us with annuities. 

So when you are talking with a wealth manager, typically you will see either a very large firm that will have all of these experts in-house, or you’ll be working with a financial planner who a team of individuals that they can refer you to for help with these different types of services. The latter is case at Third Act Retirement Planning. I work with a team of different professionals that help me provide all these services to my clients. Click here to see how much financial advisors cost?

No Cost No Obligation Call

If you are wondering whether investment management or wealth management would be the best option for you, I suggest you schedule a free, no-obligation, 20-minute phone call with me. We’ll go over where you are now and where you want to be, and then at the end of the call, I’ll share you with some tips and what  I’m doing for my clients. At that time we can decide if we want to have another meeting.

Schedule Now: https://calendly.com/thomascloud/retirement-ready-success-call 

Also I encourage you to watch my free retirement video: https://go.thirdactretirement.com/strategy 

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