People often end up confusing between portfolio management and wealth management, although both of these are a very different concept. Portfolio management is more about seeking decisions on the progression of creating and evaluating the assets in the portfolio of the investor while wealth management looks at the entire spectrum of personal finance on an individual level. Even though both of these are branches of the management, these tend to work on different levels.
We here look at how portfolio management and wealth management work around and find the differences between them. Read along.
What is Portfolio Management?
A portfolio is said to be a group of financial assets including stocks, commodities, bonds, cash equivalents, mutual funds, exchange-traded funds and more. Portfolio management looks at the aspect of making decisions regarding these investments and their appropriate mix. It looks at the asset allocation and balancing the risk accordingly against the estimated performance. It determines the strengths, weaknesses, threats, and opportunities regarding the assets and their performance and makes an optimum choice so as to maximize the returns from the pool of assets.
Example of Portfolio Management
For say an investor has a fund of Rs 1 lacs to start and he intends to create a diversified portfolio to help leverage higher returns and lower risk metrics. A portfolio manager will distribute the funds across different asset options like equity, mutual funds, real estate, fixed deposits, bonds, gold and more. The bifurcation will be done by the portfolio manager to maximize the returns while creating a basis for lower-risk pattern.
Understanding Portfolio Management
It is quite common to see portfolio management and wealth management in the same breadth although they both are not the same. Portfolio management looks at the aspect of creating and managing the investment of an individual. Portfolio management is conducted by professional portfolio managers who manage the portfolio on behalf of others. Although plenty of individuals also build their portfolio and manage it on their own. Portfolio management is guided by the goal to maximize the return on the investments bought by the individual whilst managing the risk to the lowest possible of exposure.
Generally, portfolio management can be either passive or active in nature. Passive management refers to the aspect of setting up a strategy and keeping it on for the long run. It is also known as indexing or index investing. Active management refers to the situation where a single manager or a team of managers manage the fund on behalf of the client through investment decisions and research.
What is Wealth Management?
Wealth management is a broader term than portfolio management and looks at the aspect of managing and enhancing the overall financial situation of the individual or an organization in a bid to help protect the financial wealth. It is commonly used across business, trade and even on an individual level. It comprises all financial aspects like day-to-day financial planning, accounting and tax planning, retirement planning, estate planning and much more. If you look at it, portfolio management is one of the sets of services that are offered under the wealth management.
Example of Wealth Management
For say there’s an affluent individual with a wealth that needs to be managed. The individual seeks greater financial oversight and active management so as to mitigate the financial obligations and plan accordingly. Wealth managers tend to oversee the financial oversight and address the need for wealth management for the individual.
Understanding Wealth Management
Wealth management is more about integrating the pieces and advice regarding the financial aspect of an individual. It provides a holistic approach where a manager coordinates with their services so as to manage their money and plan accordingly so as to meet the present and futuristic financial needs and requirements posed by the clientele.
A wealth manager forms a designated plan so as to increase the client’s wealth based on the financial situation, goals and level of risk tolerance. The manager develops the plan and continues to update and review the plans so as to rebalance the financial portfolio whenever required. This is usually appropriate for wealthy individuals who have an array of diverse needs and needs to balance between them.
A short synopsis
In a nutshell if we were to look at portfolio management and wealth management, there are various aspects that differentiates them. Here’s a tabular representation of the differences between portfolio management and wealth management to shed light to the matter.
|Particulars||Portfolio Management||Wealth Management|
|Definition||Managing a client’s portfolio of assets||Managing client’s overall financial aspect|
|Focus Area||Investment options||Financial planning|
|Functions||Managing the assets like stocks, bonds, mutual funds, ETF’s commodities and more to yield higher returns.||Managing client’s tax planning, accounting planning, retirement planning, estate planning and more.|
|Designated person||Portfolio managers||Wealth Managers|
|Responsibility||Manage assets accordingly to yield high returns whilst lowering the risk metrics.||Carrying out fiduciary responsibilities to maximize the client’s benefit and manage wealth accordingly.|
Portfolio management and wealth management may seem similar to a commoner but they are quite a different phenomenon. Portfolio management is inclined towards creating an investment plan which helps to generate the maximum of returns while lowering the risk metrics while wealth management looks at the aspect of providing a financial overview and planning to manage the wealth accordingly. While both the portfolio manager and wealth manager may look forth to providing guidance in financial growth and assistance, the roles are vividly different for each of them. You can seek the services of the desired professional based on your requirements. Although there may be instances too where you may need services of both of them at once.