Macro Moves

Wealth Management V/s Portfolio Management

Deb P Samaddar

Created on 17 Apr 2020

Wraps up in 4 Min

Read by 9.8k people

Updated on 15 Dec 2023

Wealth management, portfolio management, consulting and advisory services are a few words that we tend to use interchangeably without realising the difference underlying among them. Especially, when you are about to fetch the service of one among them, you must be well aware of what these terms mean and then choose accordingly. Selecting the wrong service for the problem is like taking the incorrect medicine and hoping to get cured.

So it’s time we find out how each differs from one another.

Wealth Management

With wealth in the hands of the top 1-2% on a steady rise, it is almost impossible for them to manage all of it single-handedly. That is where a wealth manager comes into play. In other words, he is like a family doctor who addresses all the health requirements of the family.

Wealth management is a wholesome package of service which caters to all the financial needs. From A to Z they take care of every financial necessity. These services are mostly sought by individuals of high net worth, small and family businesses. The wealth managers comprehend the financial needs and risk appetite of their clients and construct a plan accordingly. However, their primary goal is to maximise the given wealth.

They work closely with attorneys, lawyers, and bankers, and fulfill their tasks after a deliberate discussion with their clients. He conducts a study on the various financial products and allocates the wealth accordingly. Be it emergency funds or on decisions concerning the clients' will, the wealth manager has a crucial role to play.

As part of their job, wealth managers:

Undertake hedging activities
Buy, hold and sell investments basing on the performance and activities of the market
Focus on new investment ventures and real estate-related activities
Address long-term and short-term financial needs of the client
Handle assets held internationally
Planning will after the life of the client
Retirement and philanthropic activity planning
Manage taxes and so on

Portfolio Management

Unlike wealth management, portfolio management has a narrower scope. In short, portfolio management is the art of picking the right financial product and setting up a customised portfolio that aligns with the needs of the client. He simply takes care of an individual’s investments, ensuring that the targeted returns are being reaped. He pays due regards to various factors like objective, risk appetite, age, etc and makes it a point that the investment fetches the maximum return. He allocates the money across various investment avenues, diversifies it and rebalances it as and when the need for it arises. They might sell or manage a particular financial product as well.

Portfolio management falls under the falling different categories,

Active portfolio management

Here they monitor the portfolio of the client and constantly analyse the markets reading the various signs. The managers sell, buy or rebalance the portfolio to outperform the markets or to reap the desired returns. They also involve in day-to-day trading.

Passive portfolio management

The portfolio managers simply make investments that concentrate on the financial goals of the investor and forget about it. These are very common in long term investments. For instance, a manager might invest in index-based funds and quit worrying about it.

Discretionary portfolio management

The manager receives full authority to act on behalf of his client and takes the necessary steps to fulfill his financial objectives.

Non-discretionary portfolio management

On the other hand, under this type, the manager can make suggestions, advice or recommendations. But it is up to the individual to take action or make the decision.

Consultant and Advisory services

This is yet another service that offers a valuable suggestion to clients to solve a particular problem. Say you have a problem with your eye, under such a case you will be approaching an eye specialist. Similarly, if you are dealing with a specific problem, like something to do with mergers, acquisitions or expansion, then you will be getting the assistance of a professional who has mastered that field. He has the good problem-solving skills and helps you pick the right course of action.

Summary of the differences

Look at the table below to get an idea about the differences between the three 👇

	Wealth management	Portfolio management	Consultant and Advisory services
Scope of activity	They handle all the financial needs and requirements of a client. They manage portfolios and offer advice and consultation as well.	Their activities pertain to the managing of a particular portfolio.	These managers offer solutions or recommendations to a particular financial or management-related issue.
Objective	They undertake activities to uplift the entire financial standing of the client.	They ensure that the portfolio under management renders maximum returns.	Help clients see the possible solutions and their outcomes. They try and assist them in arriving at the best course of solution.
Relationship	Wealth managers work in close association with the clients, their attorneys and other key officials. They work with clients for the long-term.	Their major focus is on rendering a perfectly tailored portfolio. And once the objective is fulfilled their responsibility ends. The relationship may be for the short term or the long term.	They are associated with the clients only for a stipulated short period or until the problem in hand has been sorted.

The Bottom Line

As far as the risk factor is concerned there is at least a minimum risk in every service. No service or investment is risk-free. Next time you are given a financial problem you will know whom to approach. Ensure that you choose the right one who can best understand your financial goals and needs. Hope you like this Wealth Management vs Portfolio Management via these differences.