Director of Financial Planning at Blue Rock Dravo Bay. I’m strongly committed to the financial planning industry. I take great pride in empowering clients and becoming their financial confidant.
Do you know the difference between asset management and financial planning? If yes, can you articulate why both are a necessary part of an overall wealth management strategy?
Today we’ll arm you with the basics and some analogies that make it easier to remember, to educate others, and be sure that your wealth management plan encompasses both.
Using the analogy of a physician-patient relationship, let’s start with some definitions.
Wealth management is a decades-long process of generating, investing, growing, and harvesting financial assets. It’s the process of applying financial expertise to maximize long-term wealth. Wealth management is analogous to health management—a physician’s commitment to optimizing your physical vitality and well being. Your doctor takes your medical history, age, lifestyle, and other factors into consideration to manage and maximize your physical health over time.
Asset management is a subset of wealth management. Assets are your possessions with monetary value and can include real estate, cash, stocks, and retirement accounts. Your assets can be actively or passively managed by you or a professional financial advisor team. Your financial assets might be compared to your ‘diversified’ commitments to health, like daily exercise, clean eating, and other immune system-boosting actions.
Financial planning is also a subset of wealth management. It’s a set of specific, focused strategies and tactics created in tandem with your financial team. Financial planning is the process of preparing for and adapting to life phases and changes (career changes, geographical moves, college savings for kids, retirement plans, etc). Using our medical analogy, financial planning is like health planning, where your physician makes recommendations based on your current health and future goals.
Diving Deeper into Asset Management
Let’s explore asset management in more detail. The level of strategy involved in your asset management plan will absolutely impact the long term health of your financial life.
While real estate and savings are assets that may be included in your wealth management strategy, here we’re defining asset management as the ongoing management of all or part of your stock market portfolio.
First, we presume that readers accept that historically, and over time, a greater rate of return can be achieved in the stock market than by maintaining cash assets in a savings account. While market fluctuations are predicted and do occur, of course, we strongly believe that a professional and strategically designed portfolio can optimize your portfolio’s health.
Why we believe in evidence-based asset management
Just like your medical team looks holistically at your weight, blood pressure, medications, age, and risk factors, your wealth management team is analyzing your age, investment time horizon, and existing financial health to identify suitable assets (stocks, bonds, etc.) to help achieve your unique goals.
Everyone has an uncle or friend who manages their own money. You’ve likely heard some refer to the “set it and forget it” approach. This can be risky, as some people invest all they have in one individual stock or one mutual fund (set it) and then neglect to analyze its performance or relevance to their goals over time (forget it).
We have clients who came to us in their fifties after having chosen this approach in their thirties. They created asset allocation goals for a 30-year-old childless couple but never updated them when they got married, had children, changed careers, and approached their fifties.
Just like your physician wouldn’t advise the same diet and exercise plan for a 30-year old and a 50-year old, we don’t advise that you risk your financial health by not adjusting your financial goals and strategies as your life circumstances change. Our experience demonstrates that a strategic and tactical approach to wealth management offers a significant edge over the DIY approach.
Why evidence-based strategies work better
Evidence-based asset management will vary from person to person based on numerous factors including time horizon, age, risk tolerance, and investment goals. While each person’s portfolio is uniquely tailored to their needs, the overarching principles for managing that portfolio will remain the same.
For us, we want to ensure that you receive maximum value without being inundated by high, costly fees. Historically, actively managed funds have underperformed their passive, more cost-effective counterparts. Our philosophy is rooted in this low-cost, evidence-based investing model. What does this model look like?
-Low-cost through appropriate passively managed funds
-Increased tax efficiency
-Built-in asset location strategy
These principles highlight our asset management philosophy and give us the opportunity to deliver optimum value to our clients.
Financial planning strategies and tactics
Now that you’re clear on the importance of asset management, let’s view it in the context of your financial plan. As mentioned above, financial planning is the process of developing specific strategies for your goals, and a plan of action to achieve them.
If you’re like most Americans, you’ve got important questions, such as: when should I start taking social security benefits? Am I going to be ok? Am I on the right path to achieving my goals? Will our retirement portfolio last for 25 years?
At Blue Rock Dravo Bay, our holistic approach means that we have a deep understanding of our clients’ financial life. We address these and other complex questions and create customized financial plans using relevant strategies for:
-Budgeting and saving
Taking your customized strategies into account, we recommend relevant tactics, such as:
-Integrating your asset management plan with your charitable giving plan to lower your taxable income
-Matching your portfolio investments to your risk tolerance, goals, and time horizon
-Ensuring you have a contingency plan for market downturns
-Savings accounts specifically for education/college
-Delaying Social Security benefits until age 67 or 70 and using Roth conversions to fill income gaps at lower tax thresholds
Holistic financial planning is in our DNA
Blue Rock Dravo Bay is ethically and passionately invested in the short- and long-term financial health of our clients. If you’ve heard the phrase “Patient, heal thyself” you’ll appreciate that as financial advisors, we won’t leave you to your own devices when it comes to your financial plan. Now more than ever, there’s too much at stake to “set it and forget it.”
Our core competency focuses on financial planning. With that responsibility entails so much more than just the initial plan and recommendations that you see during a meeting. We are constantly evaluating the economic landscape, market, and new legislation for changes that may affect you. Now more than ever, we are strongly positioned to advise our clients to weather financial storms.
Call your Blue Rock advisor with asset management questions, and if we haven’t met you yet, schedule a conversation with us today or call us at 302-660-3350.