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What Is “Wealth Management” and “Financial Planning”?

What Is “Wealth Management” and “Financial Planning”?

What Is “Wealth Management” and “Financial Planning”?

I feel fortunate to have the opportunity to talk daily with quality advisors around the country. Some of them have experienced an incredible level of success, while others are struggling to stay in the industry. The one thing they all seem to have in common is the challenge of finding a title to put behind their name that accurately describes what they do. We hear terms like agent, advisor, adviser, financial consultant, financial planner, and wealth manager.

With so many titles available, it is hard for the public to know what to expect from someone who holds any given title. All of these titles have become less marketable because of the lack of definition. A very successful client that I work with in a consulting capacity has built a large southern California firm that manages in excess of $5 billion in assets. He provided an interesting response when I asked him what “wealth management” means. He said, “Dan, on every headstone you see in a graveyard you will see the year that someone was born and the year that they died. In between those dates is a dash. Our job is to manage the dash.” It took me a few moments to realize how profound his statement was. Those dates represented life and the finality of it all. We are all going to die. Period. No asterisk needed there. No disclosure language. But that dash represents what happens while we are living.

There are a million ups and downs between the dates that appear before and after that dash. Joyous memories of high school and college. Falling in love, and possibly getting married and raising children. Growing old and watching your own kids have kids. Then eventually, if you are lucky enough, retiring and being able to live out your final days with dignity, the way you would have chosen to do. Each life is a journey with a clear starting point and a clear ending point. What happens between those two points is largely up to us. This brings me to what I believe real wealth management involves.


The precursor for the need for wealth management is having wealth. A professional who specializes in investment management will work to ensure that their clients are disciplined enough to do the things necessary to create wealth. The word wealth means different things to different people. For some, having $1 million is wealth, while for others, spending $1 million on a car is wealth. Regardless, wealth creates complexity, which is where management happens. Too frequently when I meet with advisors who say they manage wealth, I find that they are really just investing money for people. They are wealth accumulators. Their clients have investable assets with them, and their main goal is to help make the money grow. While this is a necessary part of managing wealth, it isn’t the sum total of wealth management. It is simply wealth accumulation.

Real wealth management focuses equally on mitigating risk and hedging the wealth against that risk. A brilliant wealth manager may earn a client 10% returns in down markets, but that all becomes irrelevant if the client becomes disabled, is permanently hospitalized, or passes away in an untimely fashion. It happens all the time; in fact, it happened today to thousands of people who believed it would never happen to them.

To be comprehensive, wealth management must accomplish the following things:

1. Promote Tax Efficiency – A good wealth manager should start by ensuring that every single dollar counted as income is received in the most tax-efficient way possible. This ensures that the greatest amount of dollars will come to the client and be available to grow.

2. Grow the Dollars – Once a client is earning a decent amount of money, they need to redirect some of that money into a vehicle that will help them grow it. Should they choose a 401k, a ROTH, cash value life insurance, stocks, funds? The real answer is “Who knows?” You need to know something about the client before you can answer that question.

3. Protect the Dollars – This is the number one area where most financial planners and wealth managers fail. They don’t protect the client from things that the client hopes will never happen but nevertheless happen to people every day. Every client should have the right amount of life insurance, disability insurance, and long term care insurance to protect their wealth from unexpected events.

4. Take Back the Dollars – The whole point of protecting wealth as it grows is at some point being able to stop having to earn dollars in the traditional sense and retire while making plenty of money and never having to worry about the money running out. The greatest accumulation plan on earth is pointless if we don’t make sure the money will last.

5. Transfer the Dollars – When the client ultimately moves on and the inevitable occurs, who will receive all the dollars that they worked so hard to save? Will the money go to the government in the form of an unnecessary tax? Will it go to the children or to a charity that was dear to the client? Regardless, a plan must be in place to make sure that the money goes where it needs to go in the most tax-efficient way possible.

I acknowledge that many financial professionals focus on just one of these areas and on a single product line. Property and casualty firms play a key role in protecting the dollars, as do disability income and long term care specialists. The bottom line, however, is that people with assets need an individual who can quarterback it all. Having a ton of dollars that go away because you were not prepared for the unexpected is bad wealth management. Having a bunch of life insurance but no plan to grow dollars is pointless.

Finally, growing millions of dollars without knowing how to have a comfortable retirement and leave your intended legacy is pointless. I hope the future of the financial industry sees more true wealth managers evolve. I do meet some of them out there. But most simply specialize in one of the areas described and do a minimal job of addressing the other areas. A good wealth management firm will have revenue coming from everywhere because they have covered all of the necessary bases involved in growing, protecting, and transferring wealth.