A newly referred physician recently asked about the difference between financial planning and wealth management. This is a good question because so many of these financial terms are being used indiscriminately in the financial industry. This has generated a lot of confusion for the public when they seek for financial help. This confusion also extends to the different titles used by financial advisors. Here are some of the common titles you may have come across: investment advisor, wealth manager, financial planner, financial advisor, financial consultant etc.
Wealth management is a process that bundles together services suitable for a more affluent clientele whose needs are more complex than average. Physicians would be a good example. You have a higher income than average, a practice to manage and the option to incorporate. You also have no pension to take care of you upon retirement nor do you have any insurance or healthcare benefits set up by an employer during your working years. In a way, wealth management is much like financial planning but on a more advanced and complex level that involves more than just saving for the future. The process would generally include tax planning, corporate structure, money management, risk management and estate planning. It is an all-inclusive approach to managing your finances.
It is not uncommon for physicians to have a number of advisors. To name just a few: there are investment advisors, accountants, insurance brokers, bankers and lawyers. The challenge is that not all of these professionals communicate with each other, let alone working together to offer advice, products and services to the physicians in the most efficient and cost-effective manner. In some cases, there may be some rivalry going on between them. So, someone will need to act as a team coach. Sometimes it can be the physician himself/herself but it rarely works because they just do not have the time or the energy to deal with these issues after a busy day at work. Furthermore, the reason they hire advisors is to delegate their financial affairs to a team of professionals so they can do what the do best.
Financial planning would mostly be sufficient for residents or physicians who are starting out. Established physicians who have incorporated, have significantly reduced their debt and are in the wealth accumulation stage should investigate wealth management that incorporates all their financial affairs when planning for their future.