Financial Planning or Investment Management: A False Dichotomy?
Essential to high quality Wealth Management is the seamless integration of financial planning and investment management. A simple analogy would be to view the financial plan as the road map for your financial journey, and the investment management as the engine for your wealth, making sure you can reach the determined destination.
However, this journey is not going to be a straight A to B along smooth tarmac, and as such your map will regularly need updating as new twists and turns in your life reveal themselves. Your financial plan will therefore need to be frequently evaluated and adjusted accordingly. Whilst this is happening, it is important that your investment engine has remained reliable throughout the journey, a few services maybe required occasionally e.g. changes in asset allocation, but it is imperative that a ‘break down’ is not suffered, leaving you stranded at the metaphorical road side.
Imagine this common scenario: You decide you need to see a financial adviser to help you with retirement or estate planning. Whilst these can be incredibly complex issues - requiring high level technical knowledge - it is likely that such advice will eventually lead to discussions specifically about how to invest your assets appropriately. The adviser may not be qualified to do execute these investments effectively, and this is where professional investment management comes in. Communicating with the financial adviser, the investment manager will look to invest your assets most efficiently in terms of tax, whilst attempting to maximise the capital growth or income requirements you have outlined to your adviser.
On the surface it may seem that isolating these two aspects of your wealth allows the two individuals to specialise in the services they offer, but the following questions need to be asked about this service dichotomy:
1. Is the financial adviser sufficiently able to discriminate between suitable investment managers?
Fundamentally, an adviser will outsource the management of investments for a reason, possibly their own lack of knowledge and accreditation in the field or not wishing to devote the time required to the topic. There are a large number of investment managers working in the private client market, to whom this could be outsourced, each offering different approaches and styles. Consequently, your adviser will be required to make a judgement on which investment manager is best for you. The evaluation and discrimination of suitable investment managers is virtually identical to discriminating between the investments themselves. Therefore the reasons to outsource (and not manage themselves) will still hold for selecting who to outsource. With this in mind, how will your adviser be equipped and sufficiently informed to make this decision?
2. How committed is the investment manager to integrating their services into your financial plan?
Pure Investment managers are primarily focussed on making a return on your money. Clearly the cost of greater reward is the greater potential for loss. Whilst any creditable investment manager will look to analyse your risk tolerance to make a judgement on suitable investments for you, if they are not fully informed or up to speed with your financial plan, then there is a good chance they could be taking the wrong levels of investment risk for your circumstances.
It is essential to question how proactive your investment manager is going to be in keeping abreast of your financial situation. It is essential that your investments are purposeful, and goal driven, i.e. helping you along your financial road map. Going off road - whilst seemingly exciting and potentially offering a short-cut to reach your goals – is fraught with dangers and unnecessary risks.
Holistic integration of financial planning and investment management is key to ensure questions such as these are taken out of the equation. One company being able to seamlessly offer this level of service is not a simple venture, but it is necessary to ensure clients are offered the highest possible level of service. Staff need to be highly trained in both the technical aspects of planning and investment theory. This allows for the entire provision for the client to be undertaken in-house, making lines of communication and accountability significantly more transparent.
With regards to fees, the provision of an integrated service should save you money, despite the required dual expertise of the firm. The firm will have invested in high quality, well trained staff along with the required infrastructure, but not having to out-source work is a cost saving which should be passed onto you as the client. As a guide, a total service fee of 1% of Assets Under Management (AUM) should be considered a maximum. Preferably a tiered fee structure will also be in place with fees reducing as AUM increases.
How do I find a Wealth Manager?
With a number of seemingly synonymous private client financial services providers available, how do you know if you are being offered a fully integrated Wealth Management experience? Here are some questions you should seek to get answered when starting to work with a wealth manger:
Have they taken the time to get to know you and understand your financial goals?
Have you been presented with a bespoke financial plan?
Has the firm explained their investment philosophy to you and provided you with a proposed asset allocation?
Can you contact the firm anytime with concerns and queries once you become a client?
Most importantly, does working with the firm help you feel at ease about your financial future and confident your wealth is being taken good care of?
Should you wish to discuss the Wealth Management service we offer at Collingbourne Wealth Management, please contact us using the button below.
You may also be in interested in this blog:
What is the Difference Between Financial Planning and Financial Advice?
Image Source: California State University San Marcos
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