Confessions from a Financial Planner: Learning the Difference Between Wealth Management and Investment Management

Feb 19, 2019

Often times when I tell people I’m in the wealth management industry or that I’m a financial planner, the first question I’m asked is, “What stock should I buy?” When I tell them I don’t know, I get looks of concern or frustration.

To be clear, it’s not that I can’t give them a sound investment recommendation. Rather, I don’t know what to recommend if I don’t understand their overall financial plan.

It’s easy to see why someone might confuse comprehensive wealth management advice with investment management advice. After all, the news and media certainly love to talk about the market. And while investing in the market provides tremendous potential to grow your wealth over time (Disclaimer: You can also lose money investing in the stock market), there are other factors that need to be considered when building your financial plan.

A good majority of the working population does not understand the difference between paying someone for comprehensive wealth management advice as opposed to investment management advice. When we talk about wealth management, we’re typically talking about several subtopics that include financial planning, insurance analysis, tax planning, estate planning, retirement planning, and investment management. Although important, investment management is only one piece to a much bigger puzzle; in other words, investment management is just the management of assets such as stocks and bonds.

For example, let’s say I’m working with a small business owner. She has a goal to retire at age 65 and provide for her children’s education. She asks me what kind of investments she should buy with her SEP IRA.

Before I can make any recommendations, I need to have a better understanding of her family’s financial situation. I can’t recommend that she buy into an aggressive (or conservative, for that matter) asset allocation because I don’t know what her risk tolerance is. I can’t recommend that she contribute 20% of her income to her SEP IRA because I don’t know what her income and expenses are.

A great place to start with this client would be to get a better understanding of her monthly income and expenses so I can determine what is available to invest after any business expenses. The fact of the matter is if she is directing every penny she earns into her business, it’s going to be difficult to contribute to a retirement plan or save for her children’s college education.

Other important questions could be, what happens if she and her husband passed away unexpectedly? Who will take care of her kids and manage their wealth? These questions would lead to an estate plan that allows her to protect her loved ones from unanticipated life events. I also want to understand what her insurance coverage looks like. I want to make sure that if she gets sick or gets injured and can’t work tomorrow, her family doesn’t have to worry about finding money to pay for the mortgage. Instead, they can focus on taking care of her and aiding her in her recovery.

An ongoing relationship with a trusted wealth manager can be one of the most beneficial relationships you can have. Your financial goals and plan can change over time. A good wealth advisor will meet with their client annually or semiannually (and sometimes more) to make sure their client’s financial plan is still intact. If anything needs to be modified, they can do so. If the client’s goals change, they can review them together.

So if you ask me which stocks to buy, I’ll say: What stocks do you want to buy and why? But more importantly, what do you want to do with that money?


At Mercer Advisors, we’re all about wealth management. Our fee-only wealth managers can help you meet your financial goals. Schedule a complimentary wealth coaching session where an advisor can assess your financial situation and formulate next steps.


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