Wealth Management vs. Financial Planning

By Matthew R. Adams on December 8, 2020

Many people wonder about the difference between wealth management and financial planning. The two are closely related and center around helping individuals craft a holistic strategy for many aspects of their financial life. The slight distinction between the two arises in the scope of services that a wealth manager versus a financial planner offer. Learn more about what these services involve and how to determine what type of advice is best suited for your situation.

Financial Planning Explained

The ultimate role of a financial planner is to help you create a comprehensive roadmap of your financial goals at the different stages of your life. A financial planner is trained to walk you through the process, generally after receiving the Certified Financial Planner (CFP®) designation.  At Dowling & Yahnke Wealth Advisors, we require all of our financial advisors and financial planners to obtain the CFP® designation — a requirement that is not common across other wealth management firms.

To create a financial plan, you and your advisor will look at your current net worth (including assets and liabilities), your cash flows (income and expenses), and your priorities. Together, you’ll create a plan to utilize your net worth and cash flow to help prioritize and finance your financial goals. For example, a new budget could help someone save for a down payment on a home, put aside money for retirement, and fund their children’s future college tuition. Your financial advisor also calculates how much you’ll need to maintain your current lifestyle in retirement and can craft an investment portfolio to help you get there on time.

Every financial plan is unique. In general, it should contain a strategy for the following areas:

  • Retirement planning
  • Insurance coverage
  • Long-term savings and investments
  • Tax planning
  • Estate & charitable planning

Regardless of one’s age or income, financial planning is an important process to go through before making any important financial decisions or creating a long-term investment plan. There are DIY options available for people wanting to cut costs in the near-term, but a professional advisor brings expertise and experience, so you’re financially prepared for both the expected and the unexpected.  Some firms may prepare a one-time comprehensive financial plan for a fee or hourly charge. However, this service would generally not include ongoing portfolio or wealth management.

Wealth Management Explained

The difference between wealth management versus financial planning isn’t cut and dry; rather, the two services overlap each other. Wealth management is a specialized type of financial planning, designed for a high net worth individual. A private wealth manager is a financial advisor who understands the additional complexity of more affluent clients. Here’s what to expect from most wealth management services:

Portfolio Management

Just as with financial planning, wealth management services involve planning for significant life events, like retirement, a business sale, or estate planning decisions. A wealth manager oversees complex portfolios and balances risk tolerance, time horizon, and liquidity needs. They regularly monitor your asset allocation and make disciplined rebalancing decisions in your portfolio. With a wealth manager, you are also better positioned to take advantage of trading opportunities, such as tax-loss harvesting and the tax efficiency of where certain types of assets are located in your portfolio.

At Dowling & Yahnke Wealth Advisors, every client receives an investment policy statement, which guides your wealth manager in making recommendations for your portfolio. It outlines details specific to you, including:

  • Risk tolerance
  • Tax considerations
  • Liquidity needs
  • Target asset allocation

All of this centralized information informs your wealth manager to execute portfolio decisions based on your needs and values. The firm also has an Investment Committee that meets regularly and guides our current investment strategy for D&Y Wealth clients.

Insurance Coverage

Everyone should have a comprehensive insurance strategy, which becomes increasingly important as you accumulate more assets. Wealth management includes an in-depth look into affluent individuals’ insurance needs who want to protect their assets.

A wealth manager helps you navigate these risks by advising you on various policy areas, such as property, umbrella, life, and business insurance.

The right combination of insurance policies protects you and your family from a broad range of scenarios. From legal issues to divorce and unexpected death in the family, affluent individuals need to make sure their coverage matches their assets. Otherwise, you put your physical and financial assets at unnecessary risk. A wealth manager guides you to ensure you have enough coverage and understands the most common hazards that may apply to your situation. It is important to note that a fiduciary wealth manager like Dowling & Yahnke avoids conflicts of interest and does not sell any insurance products. We always want to provide independent, objective advice to our clients.

Tax Planning

No matter the size of your assets, any financial advisor should integrate tax planning into your broader financial plan. The difference between wealth management versus financial planning is that your tax strategy becomes much more complicated as your wealth grows. One of the standout services you receive from a wealth manager is the ability to work in collaboration with your tax preparer to make sure you’re protecting your wealth from unnecessary taxes. There is a breadth of available tax strategies to keep as much of your money intact as possible, both during your lifetime and through your estate.

In addition to managing your portfolio with tax-advantaged strategies, a wealth manager works with your tax preparer to limit your income tax as much as possible. Wealth managers may also have experience helping plan tax strategies for closely held businesses, charitable giving, and retirement plans.

Estate & Charitable Planning

Similar to other aspects of financial planning, estate planning requires increasingly complex strategies for high net worth individuals. A wealth manager partners with your estate planning attorney to craft the best plan to pass on your wealth in accordance with your wishes — while minimizing estate taxes as much as possible. Often this involves aligning a person’s family values with their philanthropic goals and developing a family mission statement. Those with charitable intent are best served through a comprehensive review of how certain income tax and estate tax strategies impact their legacy.

A wealth manager doesn’t provide legal advice but can collaborate with your estate planning attorney to choose the best planning tools to steward your assets. From IRA planning to charitable giving now and through your estate, your wealth manager is a key part of your financial planning sphere.

Other Unique Scenarios

Many affluent individuals need financial advice for life events that don’t happen frequently. Because wealth managers work at specialized firms who work with a diverse range of clients, they are well-positioned to advise on unique situations.

For instance, a career move can easily come with a complex set of compensation options, well beyond the standard salary, health benefits, and 401(k) contributions. When a new opportunity arises, a wealth advisor can help you understand things like your retirement plan options and any equity-based compensation.

They can also help you navigate a business exit, including mergers, buyouts, and IPOs. They’re also well-versed in other sudden wealth events, like a real estate sale or inheritance. Working with a wealth advisor can help ensure you have an actionable plan ready, especially during a period of life that could be emotionally charged. Your wealth advisor can draw from years of industry experience to help you navigate the financial aspects of a significant change, such as a death in the family or a divorce.

How to Choose Wealth Management versus Financial Planning

Financial planning is ideal for anyone who wants a checkup on their financial life and recommendations to follow going forward. On the other hand, wealth management is a more comprehensive level of service, with ongoing portfolio management and frequent snapshots into all areas of financial planning. At D&Y, this is reserved for individuals with at least $1,000,000 in investable assets. Reaching that level is a strong indication that you could benefit from a wealth manager.

Certain life events may also trigger the need for a wealth manager. Engaging one prior to a sudden wealth event, for example, sets you up to navigate the process more seamlessly while avoiding potential pitfalls along the way. Even working with a wealth manager after a major life event occurs, like the loss of a spouse, can provide peace of mind in a very difficult time.

A wealth manager is also better suited to assist with asset preservation strategies, particularly through estate planning. While a financial planner may be help clients ensure there’s enough to last through retirement, a wealth advisor can advise on making family assets last for the next generation and beyond.

If you think you could benefit from wealth management, reach out to a specialized firm to discuss how they can help you. D&Y Wealth, for example, offers an initial meeting with potential clients to talk about their goals and concerns. You’ll even walk away with action items you can put into practice regardless of whether you choose the firm or not.

Bottom Line

Working with a wealth advisor sooner rather than later provides for strategic execution of your financial plan, including portfolio management, tax, insurance, retirement and estate planning strategy.

Contact Dowling & Yahnke Wealth Advisors to learn whether our wealth management services are the right type of financial planning in San Diego for you and your needs.

Interested in learning more? Head to our financial services glossary for a breakdown of more common financial terms to know.


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