Think Outside The Box

The Difference between Wealth Management vs. Wealth Creation

The Difference between Wealth Management vs. Wealth Creation

I had spent nearly 15 years as a professional in the “Wealth Management” industry before recognizing that the process of Wealth Management was not the same as the process for Wealth Creation.

Investopedia defines the term Wealth Management as: “an investment advisory service that combines other financial services to address the needs of affluent clients. It is a consultative process whereby the advisor gleans information about the client’s wants, and tailors a bespoke strategy utilizing appropriate financial products and services.”

Implied as it may be, but the definition as written doesn’t actually say anything about making money for your clients.
In fact, the definition as written implies that you can only help your clients if they already have “wealth” or money to manage.

Conceptually speaking, Wealth Management is going from 1.0 to 1.1, whereas Wealth Creation is going from 0 to 1, or from 1 to 3; both are accretive, but the orders of magnitude are different.

Becoming wealthier is different than becoming wealthy.

Don’t misunderstand my point. I’m not suggesting that traditional Wealth Management is wrong or bad. The service and the profession are important. In fact many studies show that those individuals and families who follow the guidance of good Wealth Managers typically have better overall financial positions than those who do not seek professional advisory.

But traditional wealth management is a ‘me too’ business. Everyone is using the same tools with the same tool belt, which often means same or similar experiences for investors.
Traditional wealth management helps those with excess capital to preserve it, grow it, diversify it, convert it and to pass it on……but it does not Create It – atleast not as a First Principle.

The onus is usually on the client to create it, and once the client has created a certain amount of wealth for themselves – usually through their efforts with a high-income skill or in their own business – they then seek help to manage it.

This was true in my own case when I was a Wealth Manager. My personal investment portfolio was growing modestly year-over-year, but really only in lock-step proportion to the capital that I would add to it – which came from the excess income I earned as a professional.

But when looked at our own family’s balance sheet, the true wealth was being created in 2 distinct places:

  1. in the increasing value of our personal real estate holdings
  2. in the increasing value of the wealth advisory practice that I operated (our business)

Wealth Creation comes from Value Creation
Not through incremental increases of investment portfolios.

This was true for my clients too.
If I was being perfectly honest, their true wealth was being created in the same two areas: in their real estate holdings, and in their own businesses.
Try as we may, the compounded, tax-preferred and tax-deferred returns that are created in real estate and private business holdings are far superior creators of wealth than a diversified basket of stocks.

…and that is why we started this business…

…to provide investors with access to offerings that actually create wealth.
Offerings that replicate the experience and return profile of direct investment in real estate and private business, without having to buy a piece of property or start a business.

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