Difference Between Financial Planning & Wealth Management

Financial Planning and wealth management are essential part of personal financial management. Even though financial planning and wealth management is related to money, they are significantly different. Understanding the differences between financial planning and wealth management is crucial as it will help you choose the right one throughout your financial life. 

What is Financial Planning?

Financial Planning is a step-by-step process to synchronize your life goals with your personal finances. This concept is for every individual that includes managing everyday expenses and investments at all times. In other words, it includes various financial processes throughout your life to achieve your financial goals. Thus, financial planning helps you examine your goals and helps you prioritize, save and invest money to achieve your desired targets in time. 

Financial Planning includes various activities like debt management, cash flow management, risk management, contingency fund creation, etc. It uses various financial products like life insurance, mutual funds, fixed-income schemes, etc. Also, it helps to plan for future goals like education, marriage,  buying a home or car, retirement, etc. Lastly, tax planning also plays a crucial part in financial management to save your hard-earned money. 

What is Wealth Management?

Wealth management is the process of preserving your wealth and growing it over the long term. Usually, this process is adopted by High Networth Individuals (HNIs), business people, affluent individuals, or families. In other words, wealth management is a very niche professional advisory service that makes a personalized strategy using various financial products and services. Thus, it helps to secure wealth, grow and accumulate more wealth using existing wealth. 

The common activities of wealth management include identifying and leveraging profit-making activities, special structured products, capital gains assessment, estate planning, risk management, and tax management. It uses various financial products ranging from mutual funds, equities, bonds, gold, property, etc. Therefore, wealth management helps improve your financial situation through asset allocation. 

​​Difference Between Financial Planning and Wealth Management

The following are the major differences between financial planning and wealth management – 

Applicability

Both strategies are meant for a different set of individuals. Wealth management is suitable for high-net-worth individuals who have a sufficient amount of wealth. It is ideally meant to grow the existing wealth multiple times and, at the same time, preserve it. On the other hand, financial planning is meant for every individual, including HNIs and non-HNIs. Financial planning aims to save hard-earned money and invest to achieve your desired financial goals. 

Objective

Financial Planning and wealth management differ in terms of their scope of activities. Financial Planning involves managing your income and expenses and utilizing them to achieve your life goals. It utilizes the existing wealth for your financial goals and assesses whether they are sufficient to meet the desired goals. On the contrary, wealth management revolves around managing the existing and accumulated wealth lying in different assets and investing them in different financial instruments for growth.

Scope 

The process of financial planning involves managing your day-to-day expenses, monthly income, savings, tax savings, and tax planning. Thus, the scope of financial planning helps build a financial roadmap and also considers the accumulated wealth to match your desired financial objectives. In contrast, wealth management only considers your accumulated wealth and how to grow it with high-yielding returns. 

Client Involvement

Financial Planning does not require the active participation of the individual. The financial planner designs a plan which the individual needs to follow. However, wealth management requires active participation with the wealth manager to optimize the investment decision for further wealth creation and preservation. 

Remuneration to Consultant

The remuneration of a financial planner and wealth manager is completely poles apart. In India, financial planners charge a fixed sum starting from  Rs.5,000 or more per individual, and the remuneration increases based on the complexity of work entrusted to the planner. On the other hand, a wealth manager charges a percentage of the client’s portfolio. Usually, they charge 1-2% of the portfolio they manage, and it is on a yearly basis.

Financial Planning Vs Wealth Management : Key Differences 

The following table summarises the key differences between Financial Planning Vs Wealth Management: – 

Parameters	Financial Planning	Wealth Management
What is it?	Goals-oriented	Opportunity-oriented
For Whom?	Every individual	High Networth individual (HNI)
Objective	Manage expenses, save and invest to meet financial goals	Preserve and grow existing wealth
Includes	Cash flow management, investment planning, tax planning, retirement planning, contingency requirement	Wealth and risk tolerance assessment, asset allocation, wealth preservation, and growth strategy
Management Type	Passive management	Active management
Financial Decisions	Based on financial goals, time horizon and risk tolerance levels	Only on investment portfolio
Focus on	Comprehensive road map for financial life	Immediate portfolio strategy

Frequently Asked Questions