Wealth management is a somewhat broad term, and it can include a range of services. What wealth management includes depends on your financial obligations. For example, wealth management can be anything from estate planning to tax efficiency. Below, we talk more about what it is and what you should know.
Wealth management is considered a high-level financial planning service. While it can be basic, it generally includes complexities like investment management, financial advice, tax guidance, estate planning, and sometimes legal assistance as well.
If you work with a private wealth manager, they’ll often coordinate with other people who are financial experts, like estate planning specialists or accountants.
A wealth advisor often creates a specific investment strategy and client plan that helps them most effectively manage their assets.
There’s another term, sometimes used interchangeably, although it’s not exactly the same—asset management. Asset management can include the oversight of individual investments in a way that’s meant to help a client grow their net worth. An asset manager focuses almost exclusively on maximizing returns for clients.
Asset management is centered on investable assets, and wealth management is more holistic, taking a look at a client’s entire financial situation and then providing solutions for protecting and growing wealth over the long term.
We can also look at asset management as a subcategory of wealth management.
Wealth Manager vs. Financial Advisor
Another comparison that helps highlight what exactly wealth management is, is looking at this compared to a financial advisor.
A financial advisor is a term for a general financial professional, and the term doesn’t indicate a certification or regulatory requirement. Wealth managers usually have a higher investment minimum than a typical financial advisor and will usually offer more services.
What Would a Wealth Manager Do?
Again, it can vary, but typically a wealth manager would aim their services at someone who’s very wealthy. They can help with particular issues the wealthy face, like how to avoid estate tax. Some wealth managers are like liaisons or coordinators, and they’ll bring in different experts. They might, for example, work with a lawyer or accountant on your behalf.
There are a wide variety of strategies that wealth managers will use to help grow their clients’ money. Clients of a wealth manager may have access to a wider variety of investments because a wealth manager may have access to private equity options and hedge funds.
Wealth managers work on putting together plans that take into account all the aspects of someone’s life as far as their finances, like not only estate planning but also tax planning and, as mentioned, investments.
A wealth manager will build strategies based on the financial goals and risk tolerance of the individual. If a client is, for example, getting close to retirement, a wealth manager may shift strategies from riskier growth options to safer investments, so they can maintain their wealth.
Wealth managers work with the understanding that their clients have a higher net worth, and their needs are more complex, and that has to be taken into account.
When someone decides to work with a wealth manager, they need to try and work with a fee-only fiduciary when possible. That means they’re paid directly for their services by the client and can’t receive compensation for the recommendation of certain products. When a professional has a fiduciary duty, it means they have to work under the legal obligation of putting the needs of the client first.
As far as fees, a wealth manager will usually charge a percentage of the assets that they have under management. A fee schedule will often include sliding scales so that the percentage charged for wealthier clients can go down.
There are also companies and wealth managers that charge a fixed annual fee, and sometimes, companies will charge hourly rates. If you have pretty simple needs from a wealth manager, an hourly rate can save you money.
If someone hires a wealth manager who charges a fee based on a percentage of the assets under management, it’s important to know what’s covered and what isn’t. A wealth manager might include their investment advice, the cost of transactions to then implement said advice, and the costs for account maintenance. In other instances, the fee might only cover the direct work that the wealth manager puts in to pick and manage investments.
Wealth management is actually something that goes well beyond money management, and a good company or service provider builds strong relationships and offers relationships in a wide set of ways for a client who’s high-net-worth.