[IMGCAP(1)]Over the past decade, you’ve seen a lot of companies add the phrase “Wealth Management” to their names. Is it marketing, posturing or simply a newer term like “new and improved” in the advertising space?

When you look to define the term financial planning, a lot of thoughts come to mind. But the definition that fits best for me is the
management of resources, both financial and personal, through changing environments and situations in order to guide a person, family or entity toward accomplishing their life goals and objectives.

The Financial Planning Standards Board sets out a six-step process that constitutes financial planning. These steps can be found on the FPSB.org Web site, and I’ve included them below.

  • Establish and define the client-planner relationship. The financial planner should clearly explain and document the services that they will provide to their client, defining both their responsibilities and the client’s during the financial planning engagement. The financial planner should explain fully how they will be paid and by whom. The client and the planner should agree on how long the professional relationship should last and on how decisions will be made.
  • Gather client data, including goals. The financial planner should ask for information about the client’s financial situation. The client and the planner should mutually define the client’s personal and financial goals, understand the client’s time frame for results and discuss, if relevant, how the client feels about risk. The financial planner should gather all the necessary documents before giving the client the advice they need.
  • Analyze and evaluate the client’s financial status. The financial planner should analyze the client’s information to assess their current situation and determine what the client must do to pursue their goals. Depending on what services the client has asked for, this could include analyzing assets, liabilities and cash flow, current insurance coverage, investments, or tax strategies.
  • Develop and present financial planning recommendations and/or alternatives. The financial planner should offer financial planning recommendations that address the client’s goals, based on the information they provide. The planner should go over the recommendations with the client to help them understand them so that they can make informed decisions. The planner should also listen to the client’s concerns and revise the recommendations as appropriate.
  • Implement the financial planning recommendations. The client and the financial planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as a coach, coordinating the process with the client and other professionals such as attorneys, accountants or stockbrokers.
  • Monitor the financial planning recommendations. The client and the financial planner should agree on who will monitor progress towards the client’s goals. If the planner is in charge of the process, they should report to the client periodically to review their situation and adjust the recommendations, if needed, as the client’s life changes.

To some, these steps seem intuitive and are a part of their firm’s standard operating procedures. But with other practitioners, few of their engagements receive this type of comprehensive attention, yet clients may still think they are getting financial planning, when in fact the service is much less than the six steps outlined above. This may raise another issue should there ever be a discrepancy with your advice or guidance. These discrepancies can come in all shapes and sizes, and can be errors of commission or errors of omission. In other words, if you decide to short-cut the six steps or avoid certain subject matter areas that are customarily a part of a comprehensive financial plan, you may be questioned about your actions or inactions.
Limited-scope engagements may be ethically undertaken by a financial planning practitioner, but I frequently urge advisors not to accept segmented or limited-scope engagements. The main reason is because the line in the sand where limited-scope and full-service intersect is very blurry. For example, the client who simply wants an answer to the question, “Can I afford to retire?” should get more than a simple spreadsheet showing how much they can spend and what they need to earn in order to retire. You’ll be making assumptions about tax brackets, longevity, investment performance, inflation, health and estate planning. At what point would an unsatisfied client or the heir of a deceased client have the right to accuse you of not evaluating all of the known possible variables to consider in a limited-scope retirement planning forecast?



For those who are doing comprehensive financial planning according to the six-step process, you are earning your money and your clients should be happy. The distinction between financial planning services and wealth management, in my opinion, happens in Step Six. Step Six is the monitoring of the recommendations and the overall financial situation to see that everything still makes sense. I’ve noticed many financial planners seem to relax a bit here — especially if the planner is managing assets or getting paid from some other source other than the client. I interpret Step Six as a complete top-down analysis on a regular basis of all of the subject matter areas in your clients’ lives, and not just about the investments.

Therefore, the jump from financial planner to wealth manager to me is more than simply terminology. The wealth manager must not only consider all of the client’s pertinent financial, personal and family data, goals and objectives, and compare forecasts to actual on a regular basis. It is the difference between turning a financial plan from a snapshot into a motion picture.

As a snapshot, a well-done financial plan is likely to be very precise and accurate as of a particular moment in time. But that plan may be outdated as soon as tomorrow. A rapid change of a material fact or two and the plan may need complete revision. The wealth manager will set very short intervals for a comprehensive review to be sure that any changes or modifications occur timely.

In addition to making sure that regular reviews occur, the wealth manager will need to be proactive. It is not ideal for a wealth manager to wait for clients to come to you with ideas and questions about evolving circumstances. The wealth manager needs to anticipate issues and needs, and to begin to address them in advance of the need or deadline so that alternatives can be fleshed out. For example, guiding a client through the sale of a business or eventual retirement with an internal succession plan is something that may take years to architect. This needs to start as many as five years before the target date and may include details such as redrafting a deferred-compensation plan for management so both the sale proceeds from the company and the payout of the deferred-compensation plan don’t happen in the same tax year.

The wealth manager is inching closer to a family office than a traditional financial planning engagement. Wealth managers should work closely with the client’s other professional advisors to be sure that all of their services are completed timely and pursuant to the plan. In fact, I take the position that the wealth manager is responsible for overseeing the work of these other professionals and should be the one holding others accountable for the timely delivery of their services and overall assistance with the planning process.

Every day, issues arise in your clients’ lives that can be mitigated when you upgrade your service to that of a wealth manager. In fact, if any of these issues have ever happened to one of your clients, it is safe to say that you may not have been proactive enough as their financial planner:

  • A client passes away with assets held jointly, rather than in their trust. The proactive wealth manager rarely allows a client’s estate to go through probate unless there is another reason why probate makes sense.
  • Your client has a loss that is not covered by insurance because of policy limitations. Many financial planners look at their clients’ risk management and property and casualty coverage very briefly and not often enough. The wealth manager will review the declarations page and policies each year as they renew.
  • You have a client who has capital loss carry-forwards. The wealth manager should coordinate their clients’ tax situation with their investment portfolio no less than yearly and proactively harvest gains and losses to mitigate the impact of taxation.
  • You have a client who has recently passed with a business succession plan that is wildly out of date with respect to valuation, funding and the company’s ability to buy out the deceased’s interest as outlined in the document. The wealth manager will make sure that corporate documents are current at all times and that the moving parts are appropriate and reasonable given the facts and circumstances each year.
  • Your client dies with too little life insurance. The wealth manager, whether they sell life insurance or not, will be certain to review the adequacy of their clients’ life insurance coverage and the health of the policies in place at least annually.

I could go on for pages about the issues that clearly show whether you are delivering your financial plans as snapshots or in motion picture fashion as a wealth manager would do. Whatever you call yourself, being proactive and holistic on behalf of your clients will never go out of style. As the profession of wealth management matures, and clients read and learn more about the service that should be included in a wealth management relationship, practitioners would be well served to elevate their services.
John P. Napolitano CFP, CPA, is CEO of U.S. Wealth Management in Braintree, Mass. Reach him through JohnPNapolitano on LinkedIn or (781) 884-2390.

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