People often confuse wealth management with investment management, but the two are very different. Comprehensive wealth management is a holistic approach to the entire spectrum of an individual’s personal finances. This includes day-to-day financial planning, retirement planning, tax preparation strategies and tax planning, and even estate planning for passing wealth on to your heirs. Investment management is somewhat narrower, and focused more on what you have invested in the market. Your financial planner can help you with your investments, but their knowledge and experience doesn’t stop there.
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 financial markets. 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.
Most people do not understand the difference between paying someone for comprehensive wealth management advice as opposed to asset management. When we talk about wealth management, we’re typically talking about several subtopics that include financial planning, insurance analysis, tax planning, estate planning, education planning, budgeting, retirement planning, and investment management, otherwise known as asset management. Although important, asset management is only one piece to a much bigger puzzle.
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 management advisor 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 regularly 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 financial 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? And more importantly, what do you want to do with that money?
Dane Sauer, CFP®, Financial Planner 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.
Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
This document may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control.
December 19, 2024
December 17, 2024