Alex GoodmanPortfolio management and financial planning are two essential components of the financial services sector. Despite the fact that they are frequently used synonymously, they are not the same. Selecting the ideal financial advisor for your needs will be made easier for you if you are aware of the differences between the two sorts of advisors which are managing portfolio management vs. financial planning.
In a Nutshell
- Financial planning is the process of evaluating a person’s total financial condition in order to set long term financial goals.
- To achieve a specific investor’s investment goals, portfolio management is carried out by financial professionals who construct and suggest portfolios comprising stocks, bonds, mutual funds, exchange traded funds (ETFs), or other investments.
- Portfolio managers are obligated to manage client investments in a fiduciary manner and prioritize the client’s interests when making investment decisions.
- Knowing the differences between portfolio management vs. financial planning will make it easier for you to choose the best financial expert for your needs
Emily RobertsPortfolio Management vs. Financial Planning
Although it is common to use the terms “portfolio management” and “financial planning” interchangeably, these staples of the financial services industry are not the same. Portfolio management is the process of opening and managing an investment account, while financial planning is the process of setting overall financial goals and making a plan to reach them.
In the industry, portfolio managers tend to be more experienced and more advanced in their careers, as they must deal with the complexities of investing. Financial planners tend to start in more junior positions.
The key to successful financial planning is to start early and stay disciplined.
Suze Orman
Financial planners and portfolio managers may have the same titles, but they are not required to have a specific certification. These designations typically include Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), or Chartered Financial Consultant (ChFC). Understanding the differences between the two types of advisors will help you select the right financial professional for your needs.
Financial Planning
When we look at portfolio management vs. financial planning, it is clear that financial planning is a more comprehensive process than portfolio management. It’s an analysis of a person’s overall financial situation that helps them set long term financial goals.
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Financial planning includes a lot of different things, like setting up an emergency fund, saving for a new home or paying off debt, building up assets for retirement, saving for college for your kids, planning your estate, or lowering your taxes.
Before creating a comprehensive financial plan, one would need to take stock of their entire net worth. This would include a valuation of all assets, such as real estate, savings, retirement accounts, investment accounts and any outstanding debt.
Portfolio Management
Portfolio management is performed by financial professionals who create and recommend portfolios of stocks, bonds, mutual funds, exchange traded funds (ETFs) or alternative investments to meet a particular investor’s investment objectives. Portfolio managers make the day to day trading decisions on a portfolio of assets, while a financial planner makes recommendations on specific products based on an individual’s objectives.
Portfolio management professionals focus on meeting the needs of investors through the rate of return achieved within a portfolio and are often responsible for rebalancing the account to keep it in line with the investor’s allocation preferences and risk tolerance.
An important difference between portfolio management vs. financial planning is that portfolio managers are subject to the concept of fiduciary duty. They have to manage client investments honestly and put the client’s needs first when making investment decisions.
Wrap Up | Portfolio Management vs. Financial Planning
A comprehensive financial plan should include both portfolio management and financial planning. If you know the difference between portfolio management vs. financial planning, it will be easier for you to choose the best financial expert for your needs.
FAQs for Portfolio Management vs. Financial Planning
A more thorough approach than portfolio management is financial planning. A person’s total financial condition is evaluated with the aim of creating long term financial goals. Financial experts that specialize in portfolio management build and suggest portfolios comprising stocks, bonds, mutual funds, exchange traded funds (ETFs), or other investments to achieve a specific investor’s investment goals.
Both portfolio managers and financial planners may use the same titles, but no special accreditation is necessary. These titles frequently come with the Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), or Chartered Financial Consultant prefixes (ChFC).
A financial planner offers particular product recommendations based on an individual’s goals, whereas portfolio managers make daily business decisions about a portfolio of assets. The goal of portfolio managers is to satisfy the needs of investors through the rate of return generated by a portfolio. They are frequently in charge of rebalancing the account to keep it in accordance with the investor’s preferred asset allocation.
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