The lack of clarity between Money Management and Wealth Management is a confusion that plagues many new investors. Those going along their financial planning journey tend not to think of their financial requirements as evolving; largely, they see it as a static set of activities that they need to repeat for as long as they can, to squeeze as much benefit and security from it as possible.

As a Wealth Manager or a CFP, it becomes important, for this reason, to be able to make that distinction for your client. If they do not understand the nuance between making investments and creating strategies to put the wealth these investments create to use, it negatively impacts the progress and potential of their own finances.As a wealth manager or CFP, it would also make your job a whole lot more straightforward to help your client understand that the changing nature of their personal commitments and responsibilities is reflected in the changing nature of their financial requirements.

What is Money Management?

Money Management is where most people start their financial journey. As they begin to generate their first income, they begin to see the significance of financial planning- of aligning their finances with their goals. This is what Money Management is. Essentially, it is what people intuitively understand when they think of financial planning.

Largely, however, people assume that their financial health, even in the long-term, is ensured by simply following the basic prescription of financial hygiene, that is, to channel their savings into investments and keep replicating the process.

As a wealth manager or CFP, your job is predicated on your ability to expand this understanding of financial planning. This is essential if you want to add any value to your clients’ life. Unless your clients understand the difference between managing their money and optimising their wealth, they are never going to truly appreciate the necessity of your work. This simply translates into your clients missing opportunities to realise their own financial progress.

This understanding hinges on them seeing their finances, and financial requirements, as dynamic. Simply making and updating investments would prove to be insufficient once the investments themselves start to generate a fair amount of revenue; at this point, it is important to help your client see that they are no longer simply dealing with their money, they are now managing their wealth. And just as anyone would consult the doctor, as an expert in the field, to ensure their health and well-being, a Wealth Manager or CFP adds the same value to their financial health and well-being.

What is Wealth Management?

Wealth Management is the process of growing, preserving, and channelling your your growing financial reserve in such a way as to derive maximum benefit from the financial instruments and strategies at your disposal. Unlike Money Management, it doesn’t stop at making and updating investments. It takes into account your entire financial cycle, including all aspects from your taxes and overall revenue to your estate and so on.

The distinction that is crucial for your clients to be able to make is that Money Management is necessary even if they don’t have wealth. In fact, the financial practices of Money Management are geared towards channelling your income into the creation of this wealth. Wealth Management, on the other hand, comes into the picture once this wealth is created. Let’s have a look at exactly how Wealth Management extends beyond Money Management, so that it is easier for you to establish this distinction with a client. If you are an investor reading this, these points should help you decide if it’s time for you to consider incorporating Wealth Management into your financial plan.

How Wealth Management extends beyond Money Management

  • Money Management is a pathway to wealth; Wealth Management is the enjoyment of that wealth. Money Management is best understood as system of specific functions that address your client’s financial concerns on an issue-to-issue basis. A money manager will typically be involved in managing a portfolio of investments. On the other hand, your primary concern as a Wealth Manager would be to create the best strategies to incorporate the wealth from investments already made by your client into their larger financial roadmap, such that they derive maximum benefit by taking full advantage of all the financial instruments at their disposal.
  • Money Management lays the groundwork for Wealth Management to improve on. The relationship between Money Management and Wealth Management can be understood through the metaphor of farming. Money Management is the initial stages, the groundwork. It involves the tilling of the field and sowing of the crop. Wealth Management is the harvest of that crop, including the channelling of the produce towards personal profit and prosperity. In other words, while Money Management is a way for your client to channel their savings into investments in order to achieve their financial goals, as a Wealth Manager, you help them identify opportunities to expand the wealth they have accumulated.
  • The context for Money Management is short-term, while Wealth Management is only concerned with the long-term. Money Managers create strategies based on their client’s financial goals and the timelines for achieving those goals. However, a Wealth Manager executes financial decisions based on the investor’s existing portfolio, in such a way as to optimise their returns. In other words, the need for Wealth Management arises when the responsibilities of the individual begin to compound, and it becomes crucial to efficiently channel their financial reserves towards addressing these responsibilities. Wealth Management is the creation and execution of those strategies designed to achieve exactly this.

As an investor this distinction is crucial to understand. Talk to your CFP to get a clearer grasp of it, and to see if your financial roadmap calls for Wealth Management as yet. As a Wealth Manager or CFP, it is necessary to help your clients make this distinction and to help them decide when to transition from Money Management oriented financial plan to Wealth Management. Consulting experts and staying up to date with the latest trends and technology can add immense value to your clients’ portfolios.


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