In recent years, an increasing number of Indians have begun to consider their retirement and long-term financial objectives. But the reality is that many still lack a proper financial plan, and their savings often fall short of future needs. While people are earning and saving, few have a structured approach to managing their money or building long-term wealth. For this reason, financial planning and wealth management becomes necessary to understand.
While many believe that financial planning and wealth management are the same, they are actually distinct. Understanding the difference between financial planning and wealth management is the first step to making smarter money decisions.
What is Financial Planning?
Financial planning is a step-by-step process to synchronise your life goals with your personal finances. This concept applies to every individual and includes managing everyday expenses and investments at all times. Financial planning helps you examine your goals and prioritise, save, and invest money to achieve your desired targets on time.
It includes various activities like:
- Debt management
- Cash flow management
- Risk management
- Contingency fund creation
It uses various financial products, including life insurance, mutual funds, and fixed-income schemes. Additionally, it helps to plan for future goals, such as education, marriage, buying a home or car, retirement, and more. Lastly, tax planning also plays a crucial role in financial management, helping you save your hard-earned money.
What is Wealth Management?
Wealth management is the process of preserving and growing your wealth over the long term. Usually, this process is adopted by high-net-worth individuals (HNIs), affluent individuals, or families.
In other words, wealth management is a highly specialised professional service that creates a personalised strategy using various financial products and services.
The common activities of wealth management include:
- Investment management
- Asset management
- Retirement planning
- Estate planning
- Risk management and
- Tax management
It uses various financial products ranging from mutual funds, equities, bonds, gold, property, etc.
Difference Between Financial Planning and Wealth Management
The following are the major differences between financial planning and wealth management:
Applicability
Both strategies are intended for different sets of individuals. Wealth management is suitable for HNIs 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
Wealth management and financial planning differ in terms of their scope of activities. Financial planning involves managing your income and expenses to utilise them effectively in achieving your life goals. On the contrary, wealth management revolves around managing existing and accumulated wealth in various assets and investing it in different financial instruments for growth.
Scope
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 optimise the investment decision for further wealth creation and preservation.
Financial Planning Vs Wealth Management: Key Differences
The following table summarises the key differences between wealth management and financial planning:
Parameters | Financial Planning | Wealth Management |
What is it? | Goal-oriented | Opportunity-oriented |
For Whom? | Every individual | High-Net-Worth 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 |
Who Should Choose What?
Wealth management vs financial planning is not an either-or question for many people. You may start with financial planning early in life, then adopt wealth management once your wealth reaches a sizable level.
If you are building an emergency fund, planning your taxes, or saving for retirement, you need financial planning. If you already have a large portfolio and want professional advice on advanced investment strategies, wealth preservation, and inheritance planning, then wealth management is the way to go.
Conclusion
Both wealth management and financial planning are crucial pillars of a secure financial life. Financial planning lays the groundwork, helping you save, budget, invest, and prepare for life’s milestones. Wealth management comes into play once you have significant wealth and need an expert to help you grow and protect it efficiently.
Thus, understanding wealth management vs financial planning will help you make smarter choices as your financial situation evolves.
FAQs
Financial planning is for everyone and focuses on budgeting, saving, and achieving financial goals. Wealth management is for affluent investors and focuses on preserving and growing existing wealth through active portfolio management and estate planning.
Not exactly. Financial management is a broad term covering money management as well as investment and goal planning. Wealth management is a specialised service focusing on large-scale wealth protection and growth.
Yes. Effective wealth management often combines advanced investment strategies with basic financial planning to align big wealth decisions with your personal goals.
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