What is the difference between wealth management, legacy planning, estate planning and financial planning?

What is the difference between wealth management, legacy planning, estate planning and financial planning?

– Paul Damant, CFP (Director, Cornerstone Investment Advisory Services and Managing Director, Cornerstone Financial Services Group of Companies)

With much of the COVID-19 dust settling, many people are becoming more aware of their financial wellness and once again prioritising their financial future. With the financial services industry being under massive strain and highly competitive, the public is being bombarded by an array of different financial solutions – each promising a brighter future and higher returns than the next. This causes massive confusion and too many times, people are sold policies and products they do not need, cannot afford, or do not understand.

Amongst all of this “noise”, how do you distinguish between those that work as “sales agents” for insurance companies from truly independent financial planners and wealth managers whose conduct is governed by independent professional bodies and whose focus is ultimately their client’s financial wellness?

The answer lies in educating oneself to better understand these differences.

Financial services often intertwine to such an extent that it is hard to differentiate one service or area of expertise from the other. The best way to distinguish these financial services is to better understand how they are defined, what they offer and how they are interrelated.

With that attitude in mind, let’s discuss some of the different services within the financial planning and wealth management space:

Financial Planning

Here the focus lies on what you are doing or planning to do, to meet your specific short, medium and long-term financial goals. These goals can include saving for retirement, saving for your children’s education, making sure that you are adequately financially provisioned for in the event of your severe illness/disability, or ensuring that your loved ones will be financially independent in the event of your death. This process is called financial planning. A qualified and licenced financial planner will assist you in assessing every aspect of your financial life to help you design and regularly review a financial plan that changes as your life changes.

Wealth Management

After designing your financial plan, you will need to engage the services of a suitably qualified investment or wealth manager to assist you in navigating through the morass of investment options both locally and internationally. Your investment or wealth manager should construct your investment portfolio in accordance with your investment policy statement which would have been developed after considering your risk profile, investment time horizon, cash flow requirements, etc. Your investment policy statement will address suitable local and international investment products, asset allocation, monitoring and portfolio reporting frequency, levels of discretion in re-balancing assets, etc.

At Cornerstone Investment Advisory Services, we believe in and advocate for collaborative and well-educated investor relationships. Ensuring our clients are in control of their investments, participate in investment decisions and receive regular (monthly and/or quarterly) market commentary and their portfolio ensures accountability to our clients and also aligns our investors’ expectations to their investment mandates.

Estate planning vs legacy planning

Estate planning refers to the planning and management of the transfer of your estate after you pass away. Your estate can include anything from property, vehicles, cash, valuables, or businesses.  The main purpose of a well-managed estate plan is to ensure that the correct assets are transferred to the correct beneficiaries, ensuring the transfer is done in the most tax-efficient way and arranging appropriate guardians for any minors that may be left behind.

Legacy planning, however, is a more holistic view of your estate, your financial wellness, and your legacy. It includes the expert management of your wealth while you are alive and should also consider non-financial assets that are pivotal to your legacy. These may include the core values that you have lived by, responsibilities and expected behaviour you would like to pass onto others and even other wishes like community involvement, stories, wisdom and life lessons. In short, without undermining the importance of wealth and asset management, legacy planning acknowledges that there is much more to what you leave behind than the things you own and the wealth you have accumulated.

How are all these services interrelated?

Further to the various definitions discussed above, one can understand how all these financial services rely heavily on each other. Setting up an investment portfolio without knowing what you are planning to achieve seems illogical.  Or, what good is setting up a legacy plan without a suitable and well managed financial plan to achieve your financial goals while you are alive.

A good analogy would be building a house. During this process, you will need an architect, a builder, a plumber, an electrician, a site surveyor, etc. Although these roles are very separate and specialised, they are completely interrelated and all of them need to work as one entity to ensure the final goal is completed. That is how financial planning, investment planning, legacy, and estate planning work together.

Getting the right advice

Lastly, and possibly most importantly, is finding expert advice and guidance from a qualified and experienced team of financial services providers that can work together openly, honestly and with a common purpose towards you and your family’s financial wellness.

It is our experience that new clients to Cornerstone Financial Services Group of Companies (CFSG) experience a common problem in the financial services industry, in that they have a separate financial planner (who is often an agent for a particular assurance company), tax consultant, short term insurance broker, etc. None of the service providers talk to each other often due to the fear of competition and so the client is left trying to figure out what his optimal “holistic” portfolio should look like. But is it the client both qualified and capable to understand what a “holistic” portfolio should look like?

Cornerstone Investment Advisory Services together with Cornerstone Financial Planning and Cornerstone Fiduciary Services are your perfect partnership to handle all your investment, financial and estate planning needs – holistically.

Get in touch today to find out more about our holistic service offering – call us on 011 794 6611 or email info@csias.co.za. Also, feel free to share this article with friends, family and colleagues and remember to find and follow us on Facebook and LinkedIn.

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