By Eric Reich
If you get confused by all the names investment professionals go by, don’t worry, so do I. Investment Advisor, Financial Planner, Wealth Manager, Asset Manager, the list goes on. Where the main disconnect happens in my opinion, is in the services they provide. The big difference in Financial Planning vs. Investment Management.
Investment management is the end whereas financial planning is the means to the end. For me, it’s hard to imagine investment management without first doing the financial planning. That would be like walking into your doctor’s office and saying “I don’t feel well. What do you think it is?” without having any tests done or being asked any questions. It’s hard to imagine getting your symptoms to improve without these things happening. Planning should be the basis for all decisions regarding your investments. To pick a fund, ETF, etc. just because you like it would be foolish. There should be a methodology behind the investment decisions.
Planning can take on several forms. It could be an hourly engagement for the do-it-yourself investor who just wants someone to look over their shoulder or give them a second opinion to make sure they are on the right track. Planning could also be the other end of the spectrum where someone needs a complete financial plan to address every aspect of a person’s financial life including retirement, investments, estate planning, tax planning, college planning, etc. Many times, it’s something in between. The conversation you have with a financial planner should be able to uncover the depth of your planning needs. Most often this type of advice is billed either hourly or as a flat fee for a comprehensive plan. Some planners roll their planning fees into their investment management fees as well, or bill as a monthly subscription. It’s important to note that only a Certified Financial Planning (CFP®) professional can call themselves a Financial Planner.
Investment Management by contrast is the management of the actual investments themselves. Once the plan is done and agreed upon by the client, then the implementation of that plan includes the investment selection and ongoing management. Seen in this light, you can start to see a more clear distinction between the two roles. Investment management is the process of evaluating and selecting a manager for a particular asset class as well as monitoring that investment and rebalancing as needed. Investment management is typically paid for via fees charged as a percentage of assets.
As mentioned, some advisors charge for their planning fees via the investment management expenses. I often hear people say that they don’t want to pay for investment management because they can just buy low cost funds. While this may be true, those funds do not come along with the planning most investors need. This defeats the purpose if you subscribe to the notion that planning is what helps determine what investments you should own. This is where I see investors sometimes fall short. They think they are performing well because they have no frame of reference to compare against. Many times, even if the performance is ok, the investment itself is inappropriate for the investor, and no amount of performance can compensate for that. I’m a big advocate of paying as little fees as possible, just not at the expense of the plan as a whole.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
