What Is Wealth Management?

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Updated on Tuesday, July 7, 2020

Wealth management is a top-tier financial management service that caters to wealthy individuals by curating and coordinating the right mix of financial products, experts and strategies to help grow and protect their wealth. It’s a consultative process that focuses on a client’s entire financial picture, not just one part of it.

Someone who is a wealth manager coordinates a team of experts to help their client reach their financial goals. Find out more about what their services entail to help you determine whether wealth management may be right for you.

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What does wealth management entail?

For high net worth individuals (as defined by the SEC as having over $1.5 million, or at least $750,000 under management), managing their assets can be a full-time job. This is where wealth management enters the picture.

Wealth management offers a comprehensive package of financial services that can touch on every part of the client’s financial life, from investment advice to tax and estate planning. To do this, wealth managers will tap professionals and experts, such as accountants or lawyers, to help execute their client’s overall financial plan and strategy, which will be customized to their unique situation.

Wealth management services can include:

  • Analysis of cash flow and debt
  • Banking services
  • Business planning
  • Charitable giving planning
  • Estate planning
  • Insurance analysis
  • Investment management
  • Legacy planning
  • Legal advice
  • Portfolio management
  • Retirement planning
  • Risk management and asset protection
  • Social Security analysis
  • Tax advice

Do I need a wealth manager?

When it comes to various types of financial planning services, wealth management is the cream of the crop. Wealth managers generally focus on helping high net worth individuals manage all of the intricacies that come along with high levels of wealth, like tax complexities and estate planning challenges. If you need assistance in these areas, a wealth manager could be helpful.

Wealth managers are usually not needed for the typical consumer, and are instead often enlisted by high net worth and ultrahigh net worth individuals. Many wealth managers require investment minimums that can climb into the millions. In fact, the certified private wealth advisor (CPWA) certification, designed for wealth managers, specifies that it is designed to address the needs of clients with a minimum net worth of $5 million.

Additionally, the fees that wealth managers can charge — typically a percentage of a client’s assets under management — can be a deal breaker for the typical consumer.

Why use wealth management?

Whether or not wealth management is going to be beneficial to you largely depends on your financial situation. That being said, wealth management offers the following key benefits:

  • Convenience: Instead of taking the time and effort to research and hire a slew of different professionals to meet each one of your financial needs, your wealth manager acts as a sort of concierge, bringing the right advisors to you.
  • Personalization: When it comes to customization, it doesn’t get much more personalized than wealth management. Unlike a robo-advisor, which might offer you one of three pre-built portfolios, your wealth manager will make sure that every part of your financial plan — from your investment strategy to your tax plan — is customized to fit your needs and goals.
  • Focus on protecting generational wealth: Wealth management can assist high net worth individuals with the complex process of transferring their wealth, as wealth management services include estate planning and specialized tax help. Your wealth manager should be able to help you minimize fees and taxes, while also focusing on protecting generational wealth.

How does wealth management compare to other services?

Wealth management advisor vs. asset management

It can be easy to get wealth management confused with other types of management services, such as asset management. The main difference between wealth management and asset management (or portfolio management) is that while wealth management takes a comprehensive approach to a client’s finances, asset management takes a more granular approach by focusing specifically on a client’s investments.

The typical role of an asset manager is to focus on the performance of your portfolio and your asset allocation, and can include the following services:

  • Risk assessment
  • Portfolio design
  • Investment rebalancing
  • Tax minimization strategies
  • Monitoring of investments
  • Asset distribution

Additionally, wealth management tends to be more exclusive than asset management. Fidelity, for example, offers an investment management service in which you work with a team of advisors. This requires a minimum investment of $50,000 and an advisory fee of 1.05%. However, it also provides a dedicated advisor for investment management through its Wealth Advisor offering, which requires a significantly higher minimum investment of $250,000 and an advisory fee ranging up to 1.50%.

Wealth management vs. financial planning

Financial planners and wealth managers both fall under the umbrella term of financial advisors, but the two vary in significant ways.

Financial planners focus primarily on helping clients identify and reach their financial goals by designing a financial plan for them to follow. Their services, which are generally focused on lifestyle planning, can include creating a budget, planning for taxes or retirement and setting other savings goals. Meanwhile, wealth managers are more of a one-stop shop, with a focus on growing and protecting wealth.

Additionally, while a wealth manager’s clientele consists of high net worth individuals, a financial planner can serve a broader range of clients, from those who are just starting out to older investors preparing for retirement.

How to choose a wealth management firm

If you’re in the market for a wealth manager, carefully review your options, the services you’re in need of, the costs associated with each firm and the minimum investment requirements.

  • Take advantage of online resources to narrow your options: There are a number of online resources that allow you to scan through a curated directory of wealth managers, filtering out ones who might be a good fit for you based on your age and net worth. The Investments and Wealth Institute, for example, has a CPWA directory, and you can use FINRA’S BrokerCheck to research the background of firms or managers. These resources can be a good place to begin your search for a wealth manager.
  • Review the firm’s Form ADV: One document you should review before employing a wealth manager is the Form ADV. This document is filed by all investment advisors who are registered with the SEC, and includes important information about the firm’s business, clientele, employees, business practices and affiliations, services offered and any disciplinary events related to the firm, its employees or its affiliates.
  • Ask tough questions: Don’t shy away from asking your potential wealth manager the hard questions. Things you should consider asking a potential wealth manager include:
    • How do you define wealth management?
    • Who are your typical clients?
    • How are you compensated?
    • Is any of your compensation based on selling products?
    • What is your investment philosophy?
    • What licenses do you hold?
    • What financial planning designations or certifications do you hold?
    • What are your areas of specialization?
    • Will I work with you, or someone else in your company?
    • What kind of services can I expect?
    • Are you required to act as a fiduciary?

Wealth management FAQs

While wealth managers are not required to have a specific certification, they will likely have financial certifications like a certified private wealth advisor (CPWA), a chartered financial analyst (CFA), certified financial planner (CFP) or chartered financial consultant (ChFC). Wealth advisors will also need a license to buy and trade stocks for clients or to give investment advice.

When it comes to approaching a client’s wealth, a wealth manager will likely employ a number of investing strategies, many of which go back to tried-and-true methods of financial success, as well as focus on the client’s risk tolerance and financial goals. Specific investing strategies that they might deploy could include:

  • Value investing: This investment philosophy actively seeks out stocks that may have been undervalued in the market. These stocks are typically lower-priced than the broad market.
  • Growth investing: This strategy focuses on investing in growth stocks — stocks that are expected to increase in value over time — although they might not have a long history yet of doing so. These stocks are typically higher-priced than the broad market.

At its core, however, a wealth manager generally will use the best strategy depending on their client’s individual needs.

Wealth management does not come cheap. To even gain access to a wealth manager, you will typically need anywhere between $250,000 to over $2 million. From there, fees can range widely from firm to firm but typically hover around 1% of assets under management — Fidelity, for example, charges between 0.50% to 1.50% of your investments.

Wealth managers will typically charge clients based on a percentage of their assets under management. They might also charge a flat or hourly fee for wealth management services that are provided on a one-time basis or as needed. Wealth management firms might also make additional money through commissions earned by selling clients certain financial products.

All information included in this post is accurate as of July 7, 2020. For more information, please consult the Investment Firm’s website.

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