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Accounting & Finance

Financial Planning vs. Portfolio Management: Three Key Differences

By a Verblio Writer

(395 words)

It may seem like financial planning and portfolio management are the same thing, since both deal with investments and other finances. However, there are three distinct differences between the two, including their positions within the asset management field, what their objectives are, and what tasks they perform.

Position is Everything

One way to differentiate portfolio-management professionals from financial planners is by the levels that they have achieved within their organizations. Portfolio managers are in the top tier, and considered upper management level, as they generally work with mutual funds and pensions. Portfolio-management professionals have a wide array of experiences, with positions as research analysts and junior portfolio managers.

Financial planners, on the other hand, are considered mid-level players in asset management. They usually have a minimum of five years of experience in investment planning and allocation of assets, and work in institutions, such as banks or brokerage houses, although they are also often independent small business owners.

It’s All About Focus

Perhaps one of the biggest differences between financial planners and portfolio managers is what their objectives are. A financial planner, for example, helps his or her clients achieve their own personal objectives. Financial planners also help clients reduce taxes and choose investments that will achieve the clients’ future income needs for retirement, travel, education, and so forth.

A portfolio manager, on the other hand, is focused on generating the highest possible return on investment for the mutual fund or company that they work for. This is done by procuring stocks, bonds, and other financial assets that are believed to be able to fill the objective of making profits.

Main Functions

Financial planners answer questions and make suggestions based on what the clients’ needs are. Things that financial planners deal with every day include questions like: Will I be able to afford to retire? How much will I have to live on if I retired now? How can I reduce my taxes?

Portfolio managers both set up portfolios, as well as practice tax gain/loss harvesting (selling securities at a loss to offset a capital gains tax liability). Again, the portfolio manager’s primary duty is to assure that there is a return on investment for the organization that they work for.

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