Do I understand the difference between Investment Management and Financial Planning?

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

You’ve probably asked yourself this question many times. You also might have asked: “How do I know which one I need and when do I need it?” Let’s take a look at how these two financial services differ while exploring how they work together to help you reach your financial goals.

Many times, financial matters intertwine to such an extent that it is hard to distinguish one service or area of expertise from the another. The best way to distinguish these two financial services is to look at how they are defined, what they offer and how they are interrelated.

Financial Planning

Here the focus lies on what you are doing or planning to do, to meet your specific short and long term financial goals. These goals can include saving for retirement, your children’s education, making sure you have financial support in the event of severe illness or simply 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 design and regularly review a financial plan that changes as your life changes.

Investment Management

After designing your financial plan, you will need to engage the services of a suitably qualified investment manager to assist you in navigating through the morass of investment options both locally and internationally. Your investment manager will hopefully 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

How are these two services interrelated?

As evident from the two definitions, both 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 retirement plan without a suitable and well managed investment portfolio to achieve those retirement goals?

An analogy would be that of an “architect and a builder”. Both parties’ roles are very separate, specialised and yet completely interrelated. That is how Financial Planning and Investment Management work together as a team.

The South African financial services environment is filled with “advisors” who profess to be both Financial Planners and Investment Managers.

Would you place your financial future and hard-earned millions into the hands of an architect who also professed to be the builder?

Why not chose a Financial Services Group that has Financial Planning and Investment Management services, completely separated in subsidiary companies, responsibilities and specialisation, yet available to you under a single roof?

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