By Rosa Nash, Chartered Financial Planner at Montgomery Charles
‘Financial adviser’.
‘Financial planner’.
‘Wealth manager’.
When looking for professional assistance with managing your finances, these phrases pop up a lot. Often, they’ll appear to describe similar services offered by competing companies.
If you don’t understand the difference between these, we’re here to tell you: it’s not your fault! These terms may have been around for a long time, but in truth they are far too similar considering the differences between the services.
That’s not great news for you: if the profession can’t describe itself in a succinct way, how can you possibly decide which approach is best for you? If you aren’t sure how these services differ, how can you possibly compare fees and charges?
Fear not: we’re here to help. Let’s take a closer look at what these terms actually mean…
What is financial advice – and what is financial planning?
To help answer this, let’s say that someone – we’ll call him ‘Jack’ – has a question regarding his pension. Specifically, he wants to know how he can adopt pension planning that will, one day, allow him to have a decent retirement.
Both a financial adviser and a financial planner would be able to answer your question, but the process and detail required would be different.
An IFA will focus on specific products – a more transactional approach
The financial adviser
Financial advice primarily revolves around recommending specific financial products, such as investments, insurance policies, or pensions. Independent Financial Advisers (IFAs) assess an individual’s financial situation and provide recommendations on suitable products.
(A side note here: being independent is important. IFAs can look at the whole of the market when choosing a financial product, which allows them to choose the product with the best features to fulfil the clients’ needs, at a competitive cost.)
There’s no doubt that an IFA would recommend some good pension products for Jack to consider. However, traditional financial advice focuses heavily on the transactional aspect – what to invest in, which insurance policy to buy – rather than a holistic strategy that aligns with the client’s long-term life goals.
In other words: an IFA should recommend the best product on the market, but without knowing more about Jack’s life, this recommendation in isolation may not go any futher to helping Jack achieve his long-term goals and motivations.
The financial planner
Financial planning goes beyond selecting financial products. It is a structured process that helps individuals clarify their life goals and align their financial resources to achieve those aspirations.
Instead of simply growing wealth, it asks essential questions such as: ‘How much money do you need to live the life you want?’ A financial planner will want to establish your ‘number’ – the amount that allows you to achieve your desired lifestyle without financial worry. (To find out how the ‘number’ is calculated, take a look at this guide.)
Financial planning is, therefore, an ongoing, dynamic process that evolves with changes in circumstances and aspirations. Advising on a specific financial product is a very small part of the process.
A financial planner might ask Jack:
- What does a comfortable retirement actually look like to you?
- Are there any particular goals or dreams that you have? (Examples could include travelling around the world; building your own house; owning a particular car; making sure your kids lack for nothing; going back to university)
- What other income streams might supplement your later life? (Inheritance, property sales, sales of shares, and so on)
A more complex approach? Without a doubt. But it’s an approach that will be far more tailored to Jack’s actual needs, using financial products as a tool rather than an end solution.
Holistic financial planning looks at every aspect of someone’s life, from the present day until age 100
What is wealth management?
Wealth management is usually provided by private banks and investment houses. It typically caters to high-net-worth individuals and involves comprehensive financial services, including investment management, estate planning, tax strategies, and sometimes concierge financial services. This offering puts client service at the forefront and is often viewed as part of your family office.
Unlike financial planning, which centres around life goals, wealth management is often investment-driven, with a focus on growing and preserving wealth over generations and maximising returns.
Comparing fees and charges
When considering charges, we can already see that it’s hard to compare like-for-like, particularly in the case of the financial adviser vs the more holistic financial planner. Determining the ‘value’ of services will become easier once you start having direct conversations with professionals, but here are some things you can expect to consider:
- Monetary benefits are often easiest to quantify – for example the value of additional investment growth, or even the tax saving from a specific product recommendation – but especially with financial planning, these savings won’t tell the whole story.
- Harder to establish, but arguably more important, are the ‘intangible’ benefits. For example, good financial planning might enable you to retire five years early as you have full visibility of your position, and confidence that you can afford to do this. Benefits like this can’t really have a dollar value assigned to them; only you will understand their full value.
- Studies have also demonstrated benefits such as reduced stress and higher levels of wellbeing associated with financial planning.
In conclusion: Understanding what is financial planning (and what isn’t) could be crucial when deciding what’s right for you
While financial advice, financial planning, and wealth management each serve different purposes, true financial wellbeing stems from aligning money with life goals.
Montgomery Charles describe ourselves as ‘Independent Financial Planners’. Like an IFA, we have the power to advise independently on every financial product the market has to offer – but we do this with a financial planning framework, shifting the focus from mere wealth accumulation to living a meaningful and fulfilling life.
Have an informal chat to see what financial planning can do for you
Any money invested carries an element of risk and you are not guaranteed to get back the money you invested. This article does not constitute advice and you should consult your financial adviser prior to any action.
