• Home
  • Knowledge base
  • Useful Forms
  • FAQ

What is the difference between portfolio management and financial planning?

Modified on: 2018/07/12
A:

Utilizing the expertise of a financial professional can be beneficial to an individual wanting to reach an investment goal or other financial objective. However, it is important to know which types of services are provided by the financial professional. Although it is common to use the terms "portfolio management" and "financial planning" as synonyms, these staples of the financial services industry are not the same. Portfolio management is the act of creating and maintaining an investment account, while financial planning is the process of developing financial goals and creating a plan of action to achieve them. Understanding the difference between the two may help in selecting the most suitable financial professional.

Portfolio management is provided by financial professionals who hold certain FINRA Series licenses that allow them to create and recommend portfolios of stocks, bonds, mutual funds, exchange-traded funds (ETFs) or alternative investments to meet the investment objectives of a specific investor. Professionals who perform portfolio management are focused on meeting the needs of investors through the rate of return achieved within a portfolio, and they are often responsible for rebalancing the account to remain in line with the investor's allocation preferences.

Financial planning is a more comprehensive process than portfolio management, although the financial professionals that perform this task can hold the same licenses as a portfolio manager. Individuals going through the financial planning process often develop a plan aimed at meeting short- and long-term financial objectives, including building an emergency fund, saving for a new home or reducing debt, accumulating retirement assets and creating estate or tax efficiency. Financial planning may also include a discussion about portfolio management, but it is focused on what rate of return needs to be achieved to meet a specific goal or what allocation is most appropriate for an investor's risk appetite.


Did you find it helpful?
Related Articles