Difference Between Financial Planning and Portfolio Management (2024)

When we talk about the future, we often ponder about the uncertainty of life and the risks which it may lie ahead in time. This hinders our various life goals whether they are retirement planning, family welfare & medical insurance, planning for child’s marriage, accounting for daily expenses, tax planning or any other necessity.

All this thought process leads us to the concept of ‘saving’. But considering the concepts of inflation and time value of money, keeping aside a sum of money isn’t the best option. This leads to the search of better techniques of saving and creating wealth. In the quest of finding the best alternative we get acquainted to 2 most popular financial terms- Financial planning and portfolio management.

Financial planning and portfolio management are one of the most popular concepts which come to our mind. They are often the answer to the various questions such as how much should be saved for important things like retirement, child’s education and marriage etc.

Since these terminologies are interrelated, they are often used inter irreplaceable, however this is not the case. There are a lot of differences between the same.

Financial Planning Vs Portfolio Management

Talking about financial planning, it is a detailed-method of developing overall financial goals and creating a plan of action to achieve them. It is also called wealth management as it provides you a workable framework for designing and achieving your life goals in a systematic manner by preparing for shocks and surprises. It encompasses essentials financial details about your income, savings, debts, investments, insurance, etc.

Difference Between Financial Planning and Portfolio Management (2)

Portfolio management is, commonly known as investment management,all about the technique of making the right decisions about investing in various financial products & opportunities. It comprises the identification of investing needs of the investors, matching the objectives to existing investment opportunity, asset allocation for the clients, with the aim to maximize return at a given level of risk appetite.

Aim

Financial planning is all about planning, managing and budgeting for your estimated financial needs. Portfolio management is provided by financial professionals that create and recommend portfolios of stocks, bonds, mutual funds, exchange-traded funds (ETFs) or alternative investments to meet the investment objectives of a specific investor.

Portfolio managers are focused on meeting the needs of investors through the rate of return achieved within a portfolio and they are often responsible for re-balancing the account to remain in line with the investor’s allocation preferences and risk tolerance. They perform day to day trading decisions on a portfolio of assets.

Scope

While comparing both the concepts, it is clearly visible that financial planning is a wider concept than portfolio management as it is involves a much more comprehensive and detailed process than portfolio management.

Financial planning covers many areas such as building an emergency fund, saving for a new home or reducing debt, accumulating retirement assets, saving for a child’s college fund, estate planning or creating tax efficiency.

Portfolio management is more concerned with the creation and management of a sound portfolio as per the risk appetite of the investors so as to fulfill their short term and long-term wealth objectives of the investor.

Hence, Financial planning has a broader perspective than portfolio management.

Objective

Wealth managers give advice and help to enhance the overall financial situation of their clients while investment manager is concerned only to that particular portfolio he is assigned to manage.

Assessment

On one hand, Financial planning involves a deep assessment of an individual’s overall financial standing with the intention of developing long term financial goals which requires a recommendation on certain products based on the individual’s goals. On the other hand Portfolio management is the assessment of various components of portfolio so as to make various investment decisions such as investment or divestment.

Portfolio Manager Vs. Financial Advisor

A professional who assists in financial planning is referred to as “Financial Advisor” or “Wealth Manager”. The one who provides the services of portfolio management is known as “Portfolio Manager”.

“Portfolio Manager” and “Financial Advisor” are often deemed as one but in fact both of them are distinct professionals and do not perform the same function. Portfolio managers are responsible for creating and maintain an investment account, while financial advisors sell a specific product or service.

Relationship Between Portfolio Management and Financial Planning

Investment management is a subset of wealth management. Wealth management provides investment advice to their clients beside a long list of other financial services.

An investment manager takes the decision to invest in a portfolio on behalf of the client. A wealth manager develops a plan to maintain and increase the wealth and meets the client on regular basis to discuss goals, performances and to re-balance the financial portfolio.

Wealth of a client is calculated by subtracting his total debt from the total market value of all his assets (tangible and intangible). Investments are the total securities and assets invested in one portfolio.

Relationship with the Client

As we know Investment managers sell a specific set of products and services and wealth managers provide financial solutions to the clients.

Wealth managers typically have a long-term relationship with their clients that usually last with the life of the clients. Investment manager’s relationship with the clients usually ends with the investment horizon.

Relationship with other Experts

An investment manager typically uses his own expertise and academic knowledge to take decision on buying and selling of securities in a portfolio. On the other hand, a wealth manager coordinates with financial experts to look for opportunities and find better alternatives to maintain and increase the wealth of their clients.

Services Incorporated

A Financial planner provides a vast array of financial services, investment advice, tax and accounts services, retirement and other plans to their clients. Portfolio managers are committed to give client centred advice that suits their client’s portfolio. Wealth management helps to enhance financial situation of an individual or a company.

Buying and selling of investments within a portfolio is known as investment management. It manages assets and other securities (bonds, shares, mutual funds etc) towards accomplishing the desired investment goals. Financial services that come under this class of management include analysis of financial statements, selection of assets and stocks, implementation and monitoring of the investments.

Conclusion

After going through all the points of consideration, it may be concluded that Financial planning is about managing and budgeting for your future financial needs. Whereas Portfolio management is investing your current capital to grow your wealth.

I bring to this discussion a wealth of expertise in the field of financial planning and portfolio management. Having worked extensively in the financial industry, I've gained firsthand experience and knowledge that allows me to delve into the intricacies of these concepts.

Let's break down the key concepts used in the article:

  1. Financial Planning:

    • Definition: Financial planning is a detailed method of developing overall financial goals and creating a plan of action to achieve them.
    • Scope: It encompasses essential financial details about income, savings, debts, investments, insurance, etc.
    • Objective: Wealth managers give advice to enhance the overall financial situation of their clients.
    • Assessment: Involves a deep assessment of an individual's overall financial standing with the intention of developing long-term financial goals.
    • Relationship with the Client: Financial planners typically have a long-term relationship with their clients.
  2. Portfolio Management:

    • Definition: Commonly known as investment management, it involves making the right decisions about investing in various financial products and opportunities.
    • Scope: More concerned with the creation and management of a sound portfolio based on the risk appetite of investors.
    • Objective: Portfolio managers are focused on meeting the needs of investors through the rate of return achieved within a portfolio.
    • Assessment: Involves the assessment of various components of a portfolio to make investment decisions.
    • Relationship with the Client: Investment managers' relationship with clients usually ends with the investment horizon.
  3. Relationship Between Portfolio Management and Financial Planning:

    • Wealth management provides investment advice along with a long list of other financial services.
    • Investment management is a subset of wealth management.
  4. Difference Between Portfolio Manager and Financial Advisor:

    • A professional assisting in financial planning is referred to as a "Financial Advisor" or "Wealth Manager."
    • Portfolio managers are responsible for creating and maintaining an investment account.
  5. Services Incorporated:

    • Financial planners provide a vast array of financial services, investment advice, tax and accounts services, retirement and other plans.
    • Portfolio managers give client-centered advice that suits their client's portfolio.

In conclusion, financial planning involves managing and budgeting for future financial needs, while portfolio management is about investing current capital to grow wealth. Both play distinct roles in the overall financial landscape, with financial planning having a broader perspective and a focus on long-term goals, and portfolio management being more concerned with optimizing investment portfolios based on risk appetite.

Difference Between Financial Planning and Portfolio Management (2024)

References

Top Articles
Latest Posts
Article information

Author: Kieth Sipes

Last Updated:

Views: 5610

Rating: 4.7 / 5 (47 voted)

Reviews: 86% of readers found this page helpful

Author information

Name: Kieth Sipes

Birthday: 2001-04-14

Address: Suite 492 62479 Champlin Loop, South Catrice, MS 57271

Phone: +9663362133320

Job: District Sales Analyst

Hobby: Digital arts, Dance, Ghost hunting, Worldbuilding, Kayaking, Table tennis, 3D printing

Introduction: My name is Kieth Sipes, I am a zany, rich, courageous, powerful, faithful, jolly, excited person who loves writing and wants to share my knowledge and understanding with you.