Hey there, welcome to another stern comparison between a CFP vs wealth manager.
At the end of this article, you’ll be well versed in the difference between these two excellent finance professions, their perks and lows, and everything in between to help you make an informed career choice.
Our specific points of focus will be:
Without much ado, let’s get started!
The Roles of CFP vs Wealth Manager
We need to start by answering the question, “What is financial planning and wealth management?”
Financial planning is the act of assisting individual clients with lifestyle planning.
Financial planners help clients to plan their finances profitably.
It involves rendering financial services such as retirement planning, college savings, cash flow planning, tax planning, and budgeting.
A financial planner helps clients run their Individual Retirement Account (IRA) to lead a stress-free life after retirement.
On the other hand, wealth management entails working with high-net-worth individuals to make the proper investment decision.
Wealth managers are involved in estate planning, capital gains planning, and risk management; private wealth managers work closely with clients.
Many wealthy people find it challenging to manage their wealth, so they need financial professionals to give them well-informed advice and draft investment strategies to sustain their wealth.
Similarities in Roles
The most intriguing aspect of these professionals is their overlapping roles in job descriptions.
For instance, they offer investment advice and recommend social security to their clients.
Wealth managers and financial planners are also involved in portfolio management and estate planning.
Apart from these, they also perform fiduciary responsibility to their clients – prioritizing their interests in every circumstance.
However, financial planners typically work with middle-income individuals, while wealth advisors work with higher net worth clients.
CFPs and wealth managers must expertly understand the financial products they’re trading or managing.
It’s against the fiduciary standard to trick a client into investing in an unsustainable scheme.
It doesn’t matter where you choose to specialize; ensure you earn the proper designations to command the trust and respect of clients.
The proper industry designation means you have what it takes to meet a client’s needs.
A committed financial planner must earn the Certified Financial Planner (CFP) certification, while an outstanding wealth advisor/manager should pursue the Chartered Wealth Manager (CWM) designation.
Let’s now look at how these professionals differ in their everyday roles though closely aligned in the job description.
Differences in Roles
CFPs strive to meet the everyday needs of middle or low-income people, while CWMs work with the super-rich.
Certified financial planners develop financial management strategies for their low-earning clients to attain financial freedom, while wealth managers deal with literal wealth; they manage huge assets.
Thus, while financial planners create wealth, wealth managers sustain it.
However, there are numerous job openings for CFPs than CWMs, but the latter is high-paying.
Financial planning doesn’t require the direct involvement of clients, while the client is actively involved in wealth management processes.
The Melting Point
“Financial advisor” is the generic term used to qualify every professional in the financial industry, but it’s frequently used to qualify financial planners than wealth managers.
In other words, a financial advisor is synonymous with a financial planner, but we won’t use the terms interchangeably here to avoid confusion.
Other professionals we can equally call financial advisors are chartered life underwriter (CLU), certified public accountant (CPA), chartered financial analyst (CFA), and chartered financial consultant (ChFC).
The CLU deals with life insurance, the CPA deals with income tax planning and financial accounting, while the CFA focuses on financial analysis.
Thus, what gives financial advisors relevance is their commitment to a field in the industry.
Also, all these financial advisors are licensed with the Financial Industry Regulatory Authority (FINRA).
Do CFPs earn more than Wealth Manager?
Let’s find out in this next section.
Earning Potentials of CFPs and Wealth Managers
One of the critical determinants of whether financial advisors go for financial planning or wealth management jobs is their earning potential.
You don’t just want to get a wealth management degree without knowing a thing or two about wealth manager salaries.
Understanding the earning potentials of your dream job or career makes you plan your financial future adequately.
First, “salary” is the wrong terminology to qualify the earnings for these two careers because they mainly earn “commissions.”
Financial planners are typically entrepreneurs working with individual clients.
At the same time, wealth managers start with wealth management firms to enrich their resumes and garner prerequisite experience for running an independent firm.
Financial planning, brokerages, and wealth management firms offer their employees small base salaries at the initial stage of their employment.
You’re then given sales targets to meet at the end of the month.
Consistently falling short of the targets might make your employer relieve you of your job because you’re paid to dust the chairs.
As of 2021, the average income of wealth managers was $88,000 per annum, while financial planners had an average of $69,000.
Your pay could be higher or lower than these averages based on your performance.
The Bureau of Labor Statistics (BLS) pegged the average income in the finance industry at $89,000 per annum.
According to the data, as of 2020, the 25th percentiles earned below $44,000, while the top 10% of earners made more than $208,000 annually.
You can see how much you make on your versatility and doggedness from these figures.
The future of wealth management and financial planning is bright, and these career paths are worth exploring!
However, money shouldn’t be the only propeller to offer financial advisory services – having the interest of your clients at heart is one quality you’ll need.
Fee Structure of Managers and Planners
It’s a somewhat complex task to draw a fee comparison between these two career paths.
Professionals charge fees based on the type of services rendered per time.
That is, the time, resources, and expertise they’ll deploy into a service dictate how much they charge.
However, we can distinguish between how financial planners and wealth managers charge fees.
Wealth managers bill their clients based on assets under management (AUM).
AUM is the investment portfolio or money a wealth planner manages.
For instance, a wealth manager may charge 0.5% for $20 million AUM.
It means the manager charges $100,000 for managing $20 million.
Managers often charge lower annual fees for more significant amounts.
In other words, the higher the AUM, the lower the percentage you charge.
Investment management can be advantageous for wealth managers with high net worth clients.
Some management firms divide the annual fees into quarterly payments.
In the instance above, the planning manager will charge $25,000 quarterly.
On the other hand, financial planners adopt varied methods to charge for their financial services.
They also use the AUM approach in some contexts and the flat fee structure in others.
For instance, they may charge a $3,000 one-time, flat fee for drafting a comprehensive financial plan.
Financial planners may also charge an hourly fee for their services.
Planners and managers should ensure that their charges reflect the value of financial advice they’re giving.
Clients will feel cheated for paying vast amounts without meeting their financial goals.
Don’t let a client ask that: “Is it worth paying a wealth manager or financial planner?” due to your inadequate services.
It will help if you inform clients of your billing preference beforehand to avoid confusion.
However, whichever career path you choose, you must meet some requirements.
We look at the educational requirements needed to succeed as a financial planner or wealth manager in this next section.
Education Requirements
It would be best if you didn’t think of getting into wealth management or financial planning without a bachelor’s degree in a relevant discipline.
Many people are so enticed to financial planning or wealth management salary that they fail to develop themselves.
Every high earner is a product of hard work and education.
Every financial advisor hopeful should earn a degree from an accredited university.
However, earning a degree from an Ivy League institution will give you an edge over competitors.
Apart from state and federal authorities, individual organizations often highlight the educational requirements a potential employee must meet.
For instance, some organizations may demand their employees to have masters in wealth management.
Also, some managers are CPAs and licensed attorneys.
An aspiring financial planner must have the CFP designation.
You must pass a single-phase comprehensive financial planning test to earn this designation.
The six-hour exam covers finance areas such as portfolio management, tax planning, and real estate.
Accompany your financial planning or wealth management education with the relevant certification to build trust among clients.
Having the CFP or CPA designation on your financial planning or wealth management resume makes you a cynosure of all eyes.
Specifically, you should earn as many wealth management certifications as possible because it’s a high-paying career with limited jobs.
Also, our discussion on becoming a wealth manager or financial planner is incomplete without talking about experience requirements.
These careers are practical-based; hence, a client wants to know how many years you’ve worked in the industry before opting for your investment advisory services.
A potential financial planner must have at least three years of experience in the industry before being certified.
In comparison, an aspiring wealth manager must showcase five years of industry experience before earning the chartered wealth manager certification.
After your certification, you must participate in continuing education to be conversant with industrial trends and developments.
Private Wealth Management and Financial Planners Skillset
The essence of experience is to garner the prerequisite skills to set you up for success.
Since being skillful in mathematics, business administration, and economics is valuable; your sales ability gives you the desired success.
No progressive-minded employer will pair a rookie with a high-net-worth individual.
Thus, the first skill you need to master in wealth management financial planning is sales.
You should spend the first few years understanding people’s financial situations and how to convince them to buy into your advisory.
Your sales ability only materializes when you’re sociable, naturally endearing, and networking.
Before advertising yourself, you don’t wait for people to ask you about your financial planning and wealth management services.
You must also develop a nose to detect investable assets in the oddest situation and pitch yourself greatly.
Having excellent relationships with people is your biggest asset as a professional in the financial industry.
You must also be passionate about the market and stay updated about recent trends and developments.
Things are rapidly changing in the industry, and high-flying advisors often move before the curve.
Your passion will reveal your transactional ability; it will showcase your expertise in investment management.
If you’re endeared to wealth manager jobs, having a solid natural market of wealthy individuals will make things easier for you.
Of course, this is not a necessity, but it’s demanding to get ultra-high net worth clients as a newbie.
No wealthy person wants to leave their fortunes in the hands of an inexperienced wealth manager.
They doubt your ability because they’ve not seen the results of your wealth management skills.
Wealth planning is advantageous when you have strong networks!
Hence, as you think of becoming a private wealth manager, you should also foster a relationship with wealthy people in your circle to help you start on a good note.
For instance, you may plan a wealth management summit for thriving entrepreneurs to enlighten them on the need for professional asset management.
Keep in touch with them while still garnering experience to make your marketing effort easy at the right time.
Forecasting Job Growth
No matter the type of financial advisor program you want to pursue, find out what the future holds for it first.
What are the predictions about job growth in the coming years?
The BLS estimated 275,200 financial advisors in 2020, with an estimated 5% job growth by 2030.
The projection is below the average job growth for other occupations.
It means you must be highly skillful and build your network to make headway in the profession.
However, rest assured that the demand for financial advisors will increase in the coming years due to longer lifespans and the aging population.
Hardworking financial planners will always be in high demand due to the high rate of middle-income earners.
Such people need financial planners to help them with their personal finance and other contingencies.
However, wealth managers grow exponentially during the economic boom.
Choosing Between Wealth Management and Financial Planning
You can now make an informed decision on the career path you should take based on the detailed comparison we’ve done here.
Financial planning is the way to go if you want to help people build wealth and lead their desired lifestyle.
However, if you’re passionate about managing the vast wealth of the super-rich, wealth management is the best career path for you.
If you don’t connect with wealthy people, it can be difficult to start on a good note.
But if you can weather through the storm, you will earn big!
Conclusion
Financial advisors need the same skills to succeed in the two careers.
It would help if you also built trust with your clientele because it is the foundation for expansion in the profession.
Some people now use Robo-advisors for asset and investment management.
If you solid natural markets of wealthy individuals, you should become a wealth manager because it’s a rare advantage for you to succeed quickly.
However, if you don’t have a robust market, financial planning is the best path for you.
With time, you can eventually transition into a wealth manager.
The first few years are often complicated and demanding, but a fulfilling career awaits you if you can persevere!
