Wealth Managers vs Risk Managers
Behavioral Finance | Blog | Budgeting | Economy | Planning Perspectives | Portfolio Management
When our clients or prospects consider our services, they often gravitate toward one aspect of what we do for them. In some cases, they may see us as portfolio managers, balancing their needs with uncertain markets and shifting economic times. Many will see us as adept financial planners who know how to make sense of their varying financial goals. Others will see us as trusted advisors who provide the necessary guidance to address their complex financial lives when it comes to tax needs or estate planning concerns.
In truth, as a wealth management firm, we are all of those things and more. Our focus is on managing our clients’ needs, whatever they may be. But if there were a more accurate phrase to describe what we do on a day-in, day-out basis, the term wealth management would not be sufficient. A more accurate phrase that would better define how we balance clients’ needs while serving them is “risk management.”
EXPOSURE TO DANGER (AKA RISK)
If you look up the meaning of “risk” in the Oxford Dictionary, you’ll find the following definition: a situation involving exposure to danger. Taking this one step further, you’ll find the definition of “danger” to mean the possibility of suffering harm or injury.
As risk managers, we strive to help our clients minimize the potential for harm or injury from the financial risks they face in their lives. But risk management is tricky. There are so many pitfalls, so many dangers that everyday investors face. Without the right counsel, a client will often step back from one danger, only to unintentionally step into the path of another.
THE RISKS WE FACE
To create an exhaustive list of risks our clients face would be too much. Obvious stock market or economic risks are discussed endlessly in the financial news. As a baseline, we are consistently managing these risks as they relate to our clients’ lives.
But the real challenge of risk management is much more complicated. A good advisor will step in and help clients understand the multitude of risks they face and how to balance these risks against each other, prioritizing decisions based on the probability of danger to a client’s financial life. Below are just a few examples.
Lifestyle Creep – The risk of underfunding retirement as spending gradually increases alongside income growth. Many younger professionals, after completing a financial plan, tend to anchor their future retirement needs to today’s expenses. As their careers progress and their lifestyle expands, they often underestimate how much their true cost of living has grown, creating a gap between what they planned for and what they’ll ultimately need.
Behavioral Bias Risks – An investor’s own behavior can often be the greatest threat to their long-term success. Headlines can spark fear and drive panic selling during periods of volatility, while social media or peer conversations can create a sense of urgency to chase the latest investment trend. Both reactions are emotional responses that work against disciplined, long-term planning and portfolio management.
Job Loss or Career Transition Risk – Job security and income stability are never guaranteed. In technology-driven industries especially, employment situations can shift quickly, along with the value of RSUs or stock compensation built into a client’s long-term savings plan. A job loss or poorly timed career move can disrupt cash flow, savings discipline, and overall progress toward long-term goals.
Unexpected Expense Risk – Financial plans can often fall short because they underestimate irregular or one-time expenses. Home maintenance or remodeling projects, new vehicles, long-term medical needs, or providing financial support to family members, such as weddings or temporary income support, can all place strain on a plan if they’re not anticipated and built in from the start.
LIMITED RESOURCES
Managing the risks identified above requires more savings, more liquidity, more restraint, and more disciplined decision-making. Ultimately, it requires more awareness. Solving for a client’s financial needs is complex. Ensuring they are aware of the risks they face and the limited resources they have available helps clients avoid the dangers of being caught financially unprepared.
In the end, effective wealth management is less about predicting markets and more about preparing for the unknown. By recognizing the full spectrum of risks that influence a client’s financial life, we help them make sound decisions with confidence and clarity. True success lies not in eliminating risk, but in understanding it, preparing for it, and managing it wisely over time.