Money Management vs. Wealth Management

“The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” ― Mark Twain
July 17, 2017

“The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” ― Mark Twain

Wealth management and money management—same thing, right? Wrong. If a financial adviser is managing your wealth, he or she is managing your money, right? Well, in a way. Confused yet? Anybody would be— because the two services sound so similar, especially to the average investor. So, just how would you really know which of the two financial services you need?

Let’s discuss the definitions and use an example or two. Think of money management as specific, pre-established financial tasks that you need on an issue-by-issue basis. Your money manager will manage your investment portfolio for you and handle it so it stays in line with your financial goals and objectives. You have clarified your goals in the initial meeting, and your money manager can take the appropriate action for directing and overseeing your assets.

Wealth management, on the other hand, is more balanced and universal. Some might call it “holistic.” Wealth managers typically develop the asset allocation model that is used in the investor’s portfolio, but their job rarely includes the actual day-to-day management of the portfolio. Even if the portfolio uses passive index funds, the wealth manager does not manage these index funds.

So who is responsible for the actual day-to-day management of the portfolio? The money manager, of course!

Wealth management uses advanced strategies to address concerns or issues that affect your entire financial picture, from taxes to business ownership, to planning for your retirement and your estate. These services are generally beyond the scope of what a money manager provides. Estate planning can be a complex process that requires a number of skilled professionals such as accountants, lawyers, insurance professionals and the wealth manager working together. If something happens to you, it’s important to have a plan for how your business (if you’re a business owner), your land/property and other assets will be disposed of, including which family members are to inherit your wealth. These actions help ensure the financial well-being of your family.

Let’s take a look at Bob’s situation: He sold his small business and received a check for $5 million. What are his plans or goals for the $5 million? He might want to use that money to continue his $100,000 yearly income he earned while he was the owner. He might want to meet with a money manager and basically say, “I need to invest $5 million in a portfolio that’s going to grow and generate $100,000 in annual income.” Money management is a great strategy when you have a specific task to accomplish with a specific amount of money over a specific amount of time; and this is when a money manager can help with your plan of action.

A wealth manager, on the other hand, could help Bob structure his business sale and look ahead to determine the impact $5 million would have on his overall financial picture. Experienced and skilled wealth managers provide financial advice and guidance based on data, information and personal goals; selecting products and implementing a plan comes later, using other professional sources and product experts.

Do You Need a Financial Team?

It depends. If you are just a few years into your career, your financial life is most likely simple and straightforward. And if you’re just out of college or medical school, you won’t need a wealth manager — working with a money manager is usually enough to start making smart financial decisions. As you get older and more successful, your finances usually become more complex, and you may need help making good decisions—possibly beyond having a money manager.

As your financial situation becomes more complex, the more you can benefit from working with wealth management professionals. As you build wealth, your financial matters become more complicated and time-consuming, and many successful, wealthy people need the help of a wealth management team. This team might include a tax professional, attorney, financial adviser/wealth manager and insurance agent, all working together. A financial adviser/wealth manager often leads this team.

Simply remember: Wealth managers help you plan your investments, while money managers do the actual day-to-day management of your investment portfolio.