What Is the Difference Between Asset Management and Financial Planning? 

They are really not the same — just ask Prof Harry Markowitz.

Financial Planners sell verbs (ongoing advising, financial planning, ongoing asset managing, managed account services, and other services), whereas agents and brokers sell nouns (products).

The Investment Advisers Act governs verb sales to the left side of the balance sheet. Investments are assets. Assets mean the left side of the balance sheet.

Asset management as a discipline differs dramatically from financial planning. I am not the first who communicated this: Nobel laureate Harry Markowitz was.

The essence of the difference between an asset and financial planning as disciplines is the understanding of the lens through which the fiduciary advisor views the world.

In the case of asset management, the lens is that of the asset and maximizing risk-adjusted reward for a given asset-managing mandate.

In the case of financial planning, the lens is that of the human experience of the client across the table and building a strategy to achieve the family’s life goals.

In our (perfectly valid) arguments about whether “best interests” means the same thing as “fiduciary,” and to whom the label of “fiduciary” applies, we lose sight of the question: “fiduciary of what?!”

What is a fiduciary Standard? 

The fiduciary standard is the highest level of care and mandates the service provider always to put the client as a top priority. Therefore, a fiduciary advisor can only recommend an investment if it is the best fit for the customer’s financial situation.

The ’40 Act in the US (along with ERISA and other legislation) governs fiduciary conduct in the field of investment management (left side of the balance sheet).

Because the role of an asset manager is primarily institutional, the fiduciary premises articulated and subsequent clarifying guidance, are delivered through the lens of how one behaves when one serves as a fiduciary in the field of asset management.

A day in the life of a fiduciary in the field of institutional asset management looks quite different from a day in the life of a person who acts as a fiduciary in financial planning.

Family financial planning can help you create a comprehensive strategy for managing your money as you move through different life stages. It starts with the basics – setting up a budget, paying down debt, and saving – but a family financial plan can also include things like investing for retirement and setting aside money for education. 

“Fiduciary Financial Advisor” – Are We Sure this is the Frame Under Which We Want to Operate?

A fiduciary “investment advisor” – someone who perfectly practices the institutional asset management principles that earned Dr. Markowitz the Nobel Prize – and the question is: Is this the way we want to govern the conduct of fiduciary “financial advisors?”

I’m asking because it seems to me that a fiduciary investment advisor managing accurately to the mandate, they were given by a client could inadvertently lead to a client running out of money in retirement, and still qualify to call themselves a fiduciary investment advisor.

This could occur because, in a corrective market environment, an investment advisor who does not deploy liability management tools could deploy proper accumulation strategies, but if the market performs poorly, their client could still run short on available funds for retirement due to market forces outside of the advisor’s control. Are we sure this is the frame under which we want to operate?

Harry Markowitz seems to think that the field of modern asset management, which he invented, is an institutional construct and does not mean the same thing as consumer financial planning.

I agree with Harry.

I think the current regulatory framework needs to be aligned with the real values of financial planning and the academic methodology of helping families in their life journey. 

I would like to see this change in the future.

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
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