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What Is Wealth Management?

TLDR

What You Need To Know

  • Wealth management develops financial strategies for the protection and growth of high-net-worth individuals’ savings, assets, and investments
  • Professional wealth managers usually have areas of expertise, so look for a wealth management firm that specializes in the right field(s)
  • Wealth management firms typically set wealth thresholds for potential clients

Contents

Owning valuable assets is great. But it can be difficult to achieve meaningful growth over time without a broader financial strategy. To achieve a life well lived and leave behind a legacy well planned, consider using a wealth management firm. Wealth management firms can help you reach your full economic potential. 

Wealth management develops financial strategies to protect and grow high net worth individuals’ savings, assets, and investments. Depending on your financial goals and the amount of wealth you want to be managed, these strategies will vary from client to client. 

Let’s take a closer look at the services wealth management firms typically offer and how they can help you build a game plan tailored to your financial aspirations. 

What Does a Wealth Manager Do?

Wealth management is about more than alerting you to good stock picks. Wealth managers build strategies that capture the full scope of their client’s financial life, including expenses, taxes, inheritance, and investments. With this holistic approach, a client’s assets get channeled into their financial goals, such as retirement, tuition, or increasing spending power.

Your wealth manager’s approach will largely depend on their firm. All wealth management firms work to expand their clients’ portfolios but usually have specializations or areas of expertise that help them stand out in the “high net worth financial services” crowd.

Professional wealth managers usually have areas of expertise, so look for a wealth management firm that specializes in the right field(s). Before reaching out to a firm, you should have a solid grasp of what you’d like to achieve financially. Finding the right advisor for your needs from the outset will help increase your compatibility with your advisor’s financial plan. 

When you hire a wealth manager, they typically offer four established pillars of private wealth management services.

Financial planning

Wealth managers have the latitude to recommend a broad range of financial planning options for their high-net-worth clients. Managers working for an investment management firm might advise you to inject your money into the stock market. Managers at a banking institution might recommend trusts or new lines of credit.

Asset allocation and management

Asset allocation identifies investment opportunities clients can leverage to maximize their portfolios. Whether you’re looking to maximize the value of your existing assets or determine which purchasing options offer the best return, wealth managers get paid handsomely to lend an expert hand. 

Your manager can strike the right balance between risk and reward in your portfolio with a solid understanding of your goals and expectations. 

Estate planning 

One of the primary functions of wealth managers is to help clients plan their estate. In addition to creating a trust and drafting a will, another essential part of their job is to minimize the impact of taxes on wealth by identifying all possible tax deductions. 

Taxation planning

Taxes can get complicated for wealthier clients. Wealth management advisors specializing in tax planning help ensure the government gets its fair share while protecting their clients from paying more than they need to.

Do You Need a Wealth Manager? 

The answer will depend on the number of zeros and commas in your bank accounts. And while you may quickly leap past a wealth manager’s wealth threshold, you should also consider your financial goals. Ask yourself these questions before hiring a wealth management firm:

  • What is my net worth?
  • What level of risk am I comfortable with? 
  • What are my financial goals?
  • Can I achieve my goals with other financial services? 

A prospective wealth manager might decide whether your net worth is too high or not high enough to take full advantage of their services. 

Wealth management firms typically set wealth thresholds for potential clients. The ceiling will vary from firm to firm, but clients are usually reasonably wealthy individuals with lots of investment potential. 

Wealth management professionals may decline to offer their services if clients’ goals don’t align with their area(s) of expertise.

If wealth management is the right course of action, your advisor will dive into your finances to assess how well your finances match your financial plans. Your existing assets, expenditures, income, and savings are all factored in, helping paint a clear financial picture for your advisor.

Alternatives to Wealth Management 

If your net worth doesn’t meet a wealth manager’s requirements, they may recommend other financial professionals. 

Private banking vs. Wealth management

Private banking and wealth management companies typically work with high-net-worth clients. But depending on a client’s needs, one firm might be a better fit than the other.

Private banking may be a better fit for financial transactions like personal loans, deposits, and lines of credit. These services usually have benefits, including personalized service and discounted rates, and appeal to affluent customers needing in-depth financial advice. 

On the other hand, wealth management is more focused on maintaining, growing, and protecting a client’s assets. Wealth management usually involves investment advice geared toward long-term growth and maximizing the wealth potential of a client’s current assets.

Financial advisor vs. Wealth manager

The terms “financial advisor” and “wealth manager” are often used interchangeably, but there are distinct differences between the two roles. 

Working with a financial advisor may make more sense for everyday financial planning, such as budgeting a salary or saving for a large purchase. Like wealth managers, financial advisors offer a wide range of services and expertise but usually work with lower net worth clients with fewer assets. 

Wealth management firms assist clients (individuals or companies) with high net worth and diversified investment portfolios. Their clients usually have a lot of capital and more ambitious goals than clients working with financial advisors. 

What Is a Wealth Manager’s Fee? 

Much like your wealth manager’s specialization(s), their fee structure can vary from firm to firm. Firms typically charge clients a percentage of the funds they manage or a flat fee. The flat fee is usually based on the money they manage and can range from $10,000 to $50,000. 

Wealth advisors on commission usually maintain the same fee model on a sliding scale. As the value of your assets increases, your wealth manager takes a smaller percentage of the overall value. 

With a sliding scale payment structure, you’ll pay less for wealth management services in the long run. For example, if your manager manages $1 million, they might charge a 1% commission. As the value of your assets goes up, your manager will take a smaller cut. Your manager’s fee stays steady, and you don’t pay more as your net worth increases. 

Picking the Right Wealth Manager 

You should get an idea of who you’ll be doing business with before you hand over access to your money and assets. Check up on your advisor’s credentials and verify their certifications and areas of expertise.

The internet has likely done most of the work for you. Visit the American Institute of Certified Public Accountants to check for disciplinary actions on an advisor’s record. 

The Financial Industry Regulatory Authority also has a tool that confirms a wealth management advisor’s professional designations.

With these tools, you can verify an advisor’s expertise and narrow down your pool of potential advisors.

Avail yourself of the tools that can help you do your due diligence. These resources are a valuable part of the wealth management process.

A Unified Strategy To Maximize Value

Investments, property, retirement savings, and the taxes they accrue can get complicated. Aligning everything under a unified strategy typically requires a certified financial professional.

Wealth management advisors can untangle your web of questions and assets while building a long-term strategy that strengthens your finances for now and in the future. 

ICYMI

In Case You Missed It

  1. If your net worth isn’t high enough to work with a wealth manager, consider recruiting a financial advisor

  2. A wealth manager’s fee can vary from firm to firm. They will either charge a percentage of the total wealth they manage or a flat, annual fee

  3. Take a look into your advisor’s certifications and make sure they’re licensed professionals in their area(s) of expertise

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