What’s the Difference? IMCA Defines Wealth Management vs. Financial Planning

In recent years, it has become increasingly popular for many financial advisors to call themselves "wealth managers" to differentiate themselves, just as a decade or two ago it was popular to use the term "financial advisor" to differentiate from the stockbrokers and insurance agents.

Yet a recent study from IMCA has sought to better define what "wealth management" really means–and their conclusions imply that it is far more than just a fancy label for advice, and instead constitutes unique job tasks and specialized knowledge and skills different from financial planning and designed to serve a unique type of client: those with at least $5 million of net worth.

If it gains momentum, the implications of the IMCA study are significant, as it implies that some advisors are using a label that is not an accurate description of the knowledge they have and services they provide, and that those who really do wish to work in this area may need to get further training and education. While that is arguably a conflicted perspective for IMCA, as their Certified Private Wealth Advisor (CPWA) certification is intended to target this exact space, it nonetheless remains a valid point: if the job tasks, knowledge, and skills of wealth management really are different than financial planning, then people should use labels that describe what they really know, do and deliver to clients, and should be educated accordingly.

The inspiration for today's blog post is the release of the new white paper "Defining Wealth Management: Serving High-Net-Worth Clients with a Distinct Body of Knowledge" from IMCA, which discusses the results of a Job Analysis Survey conducted by the organization to better understand what "wealth management" really is in the first place.

The IMCA Study

IMCA's job analysis survey on wealth management ties to its Certified Private Wealth Advisor (CPWA) certification–in fact, it's the same process that the CFP Board used to define its job task domains and body of knowledge topic areas, and is standard for certifications seeking accreditation.

To complete the process, IMCA started by having a volunteer committee establish a tentative set of job tasks, knowledge, and skills, then sent out a survey to financial professionals to determine how relevant and accurate those were. The results were reviewed to determine which were most relevant and appropriate.

The final results were based on 400 responses, which were subsequently winnowed down to approximately 250 responses (after eliminating some responses due to insufficient job experience, too many clients below $1 million of net worth, etc.). The final responses spanned a wide range of industry channels, including brokerage/wirehouse firms, bank and trust companies, and independent firms.

Conclusions of the IMCA Study

The basic conclusion of the study was that wealth management is "a distinct field of practice through which qualified professionals help high-net-worth clients achieve their goals and objectives related to the accumulation, protection and distribution of wealth by applying a set of specialized knowledge and skills." The bold parts of the preceding statement represent the particular areas, which according to the study, establish the defining characteristics of wealth management.

So what does high net worth mean in this context? Overwhelmingly, the most common response was that $5 million of net worth is the starting point for wealth management. In terms of specialized knowledge and skills, the study highlighted four major knowledge domains, each with two or three subsections sections:

1. Domain I: Human Dynamics

  • Section 1: Ethics
  • Section 2: Applied Behavioral Finance
  •  Section 3: Family Dynamics

2. Domain II: Wealth Management Strategies

  • Section 4: Tax Strategies and Planning
  • Section 5: Portfolio Management
  • Section 6: Risk Management & Asset Protection

3. Domain III: Client Specialization

  • Section 7: Client Focus–Executives
  • Section 8: Client Focus –Closely-Held Business Owner
  • Section 9: Client Focus –Retirement

4. Domain IV: Legacy Planning

  • Section 10: Charitable Giving
  • Section 11: Estate Planning and Wealth Transfer

Notably, the principal topics above have overlap to the broad topic list for CFP certification, but it's only partial overlap: the major sections for CFP certification include General Principles of Financial Planning, Insurance Planning, Investment Planning, Income Tax Planning, Retirement Planning, Estate Planning, Interpersonal Communication, and Professional Conduct and Fiduciary Responsibility. The fundamental point is that while wealth management is similar to financial planning, it's not quite the same thing and doesn't utilize the same knowledge and skills.

In fact, as I've written in the past, the real planning issues and technical complexities involved are often quite different between financial planning and wealth management clients, from CRTs and GRATs and IDGTs that are relevant for a high-net-worth client, but not a "mere" millionaire, to planning for the claiming and taxation of Social Security benefits that is highly relevant to a millionaire but simply not material for a deca-millionaire, to the unique issues of business sales and corporate executive compensation, to the unique family dynamics that emerge at the intersection of traditional family issues and the transfer of very large amounts of money.

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