Wednesday, 3 March 2021

What Is a Wealth Manager and Do You Need One?

What Is a Wealth Manager and Do You Need One?
11 Feb
8:31

Updated on Thursday, February 11, 2021

A wealth manager is one of the many types of financial advisors that can help you manage your money. Unlike general financial advisors, however, wealth managers typically only work with high net worth individuals, focusing on the unique financial needs that their wealth demands. This includes services in areas such as tax planning, estate planning and trust services.

This article covers what you need to know about wealth managers  — from what exactly they do to what fees they charge — to help you better assess whether hiring one would be helpful to your financial life.

What does a wealth manager do?

Wealth managers offer a suite of financial services aimed at executing their clients’ overall financial plans and strategies. The strategy your wealth manager will use to help you reach your financial goals and manage your money generally will be customized, based on your unique financial situation.

Wealth managers typically only work with high net worth individuals who have investable assets that can often climb into the millions. Typically, the minimum investment amount that a wealth manager requires ranges from $1 million to $10 million.

Given that wealth managers work exclusively with high net worth individuals, they not only offer the basic suite of financial services that financial planners tend to offer — such as portfolio management and analysis of cash flow and debt — but also extra services that high net worth clients tend to require, such as:

  • Legal planning
  • Investment management
  • Tax advice
  • Estate planning
  • Risk management
  • Trust services
  • Philanthropic planning

Wealth manager vs. financial advisor

While all wealth managers are financial advisors, not all financial advisors are wealth managers. The biggest difference boils down to their clientele: Wealth managers typically require their clients to have a minimum of investable assets ranging from $1 million to $10 million, while financial advisors tend to work with clients with a broader range of wealth.

In addition, while financial advisors often do offer investment management services, wealth managers can take a more comprehensive and holistic approach to managing their clients’ portfolios (as opposed to just looking at specific investments). Wealth managers also tend to provide deeper management on a more complex set of financial needs, such as multigenerational legacy planning, and will enlist the help of different experts to get the job done, sometimes coordinating with other financial professionals in their clients’ lives, such as their accountant or attorney.

Wealth manager vs. asset manager

Also under the umbrella of financial professionals are asset managers, which differ from wealth managers in several key ways. While wealth management takes a more comprehensive approach to clients’ finances, asset managers specifically focus on clients’ investments.

Indeed, investment management falls under one of the many responsibilities undertaken by wealth managers, but asset managers focus solely on the intricacies of their clients’ investments. These can include risk assessment, portfolio design, investment rebalancing, tax minimization strategies, asset distribution and more.

Should I get a wealth manager?

If you’re a high net worth individual — which the SEC defines as those with over $1.5 million in assets or at least $750,000 under management — you might want to consider enlisting the help of a wealth manager. This is especially true for individuals who face a unique set of financial challenges, such as multigenerational estate planning or philanthropic planning.

Wealth managers may be especially beneficial in the following instances:

  • If you’re focused on growing your wealth over the long term (as opposed to just generating quick returns)
  • If you’ve suddenly inherited or accrued a mass amount of wealth and need help managing it
  • If you’re undergoing a major life change that will have an impact on your finances
  • If you’re high net worth and simply want the peace of mind that comes from tailored professional guidance

If you’re looking for a financial professional who can help you with similar services — like retirement planning, investment management and estate planning — but you don’t fall under the high net worth category, you may want consider looking for a financial advisor instead, as their minimum investment requirements may be easier to meet.

Wealth management fees

The fees for wealth management tend to vary widely from firm to firm. As noted earlier in this article, wealth managers often require their clients to have minimum investable assets often in the millions.

Many wealth managers charge a rate that is based on a percentage of their clients’ assets under management, with the average rate hovering around 1% of assets under management. Fidelity Private Wealth Management, for example, requires a minimum investment of $2 million to $10 million, and charges a fee ranging from 0.20% to 1.04%.

Additionally, many financial professionals base their rates on a tiered structure, rewarding those with more assets under management with a lower rate. So, a wealth manager may charge a fee of 1.25% on the first $1 million of your funds, but then charge 0.75% on the next $4 million. This makes it more feasible for people who have more money to invest.

However, not all wealth managers use an asset-based fee structure. Other common types of fees that advisors may charge include fixed fees (a flat, one-time fee), hourly fees (in which they only charge you for the time that they work with you) or performance-based fees (in which they charge you when your portfolio performs better than a specified benchmark). Some advisors may also earn commissions from selling certain products or making particular recommendations.

In some cases, you’ll need to contact the wealth management firm directly to learn about their minimums and fees, but much of this information should be publicly available in a firm’s Form ADV brochure.

What to consider when choosing a wealth manager

To find a wealth manager who meets your needs, you’ll want to take the following factors into consideration:

  • Their required minimums: Wealth managers can require their clients to have minimum investable assets that climb into the millions. The first thing to check for when considering hiring a particular wealth manager is whether you have the minimum amount required to become a client.
  • Their fees: As noted earlier, the structure of fees and the actual cost of the fees charged by wealth managers can vary widely from firm to firm. You’ll want to shop around to find a wealth manager that charges a fee that you think is fair. Always make sure you understand the total costs involved before signing up to work with any type of financial professional.
  • Their services: While wealth managers often cover a comprehensive set of financial services — and, if not, enlist the help of professionals that do — if you have a particular service in mind, you’ll want to make sure your wealth manager can cover it. Additionally, if it’s a crucial service in your financial life, you’ll likely be best served by an advisor who has experience in that particular area, whether that’s business success planning or trust services.
  • Their credentials: While there are no required credentials to become a wealth manager, many have certifications, such as certified private wealth advisor (CPWA), chartered financial analyst (CFA), certified financial planner (CFP) or chartered financial consultant (ChFC). Accreditation can give you assurance that your money is being managed by capable hands, as earning these certifications typically requires completing additional coursework, passing an extensive exam and adhering to certain ethical guidelines. Sometimes these professional organizations also offer databases to jump-start your search for a wealth manager, such as The Investments and Wealth Institute’s CPWA directory.
  • Their disciplinary record: Before entrusting your money with a wealth manager, you’ll want to do a quick audit of their experience and background. This can include reading through their 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 practices, employees, investment philosophy and affiliations and services offered, as well as any disciplinary events related to the firm, its employees or its affiliates.

Source: https://www.magnifymoney.com/blog/investing/wealth-manager/

The Best Obama Care Plan
« »

Szemere

Related Articles