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What is Wealth Management?

There are many types of financial services available to help individuals reach their financial goals. Some of those services — including wealth management — are specifically targeted toward high-net-worth individuals to manage all areas of their personal finances. In this guide, we’ll discuss what wealth management is, what these professionals do, and some alternatives available for consumers.

What is Wealth Management?

Wealth management is a type of comprehensive financial planning service available to wealthy individuals. These professionals often only serve clients once they have a certain net worth or a certain amount of assets under management.

Unlike other financial professionals such as asset managers or investment advisors, wealth managers provide comprehensive financial planning services in the areas of personal cash flow, investments, taxes, retirement, insurance, estate planning, and more.

Wealth Management Example

Suppose a client with a net worth of $1.5 million was looking for a financial professional to help them manage their personal finances. The client’s financial goals include ensuring a comfortable retirement, saving for their children’s college education, reducing their tax liability, and creating an estate plan to pass their assets along to their children.

When the client and wealth manager start working together, the wealth manager would do a deep dive into the client’s personal finances and goals. From there, they would craft a comprehensive financial plan for each area of the client’s finances that helps them reach their financial goals.

The client and wealth manager would maintain an ongoing relationship. The wealth manager would likely manage the client’s investment portfolio and adjust the financial plan as the client’s goals and financial situation change.

What Do Wealth Managers Do?

Wealth managers provide holistic financial planning services to their clients. They provide a similar service to any other comprehensive financial planner, but to a specific target client.

Wealth managers help their clients manage every area of their finances. First, like other asset managers and financial advisors, wealth managers help choose their clients’ asset allocations and manage their portfolios on an ongoing basis.

In addition to managing their investments, wealth managers also advise and provide services to their clients in a variety of other areas of their personal finances. Some of the services a wealth manager is likely to provide include:

  • Personal accounting
  • Tax planning
  • Insurance planning
  • Retirement planning
  • Estate planning
  • Philanthropic planning

As we mentioned, wealth managers provide similar services to those that other comprehensive financial planners might provide. The difference is that wealth managers specifically serve wealthy individuals. As a result, their services address issues that uniquely affect their target clients.

While wealth managers advise clients on many areas of their personal finances, they don’t necessarily handle all services in those areas. Instead, a wealth manager is likely to coordinate with other financial professionals also hired by the client, including accountants, attorneys, and insurance agents.

How Does a Wealth Manager Get Paid?

Wealth managers can get paid in several different ways. The most common fee structures are an annual fee, hourly fee, flat fee, or commission.

Fee-only advisors make money by charging a fee to their clients. These fees can be either annual, hourly, or flat fees. In most cases, fees are based on a percentage of the client’s assets under management (AUM). The average wealth management fee is about 1% of AUM.

While many wealth managers earn money through fees, they can also make money from commissions. An advisor with a commission-based fee structure doesn’t make the majority of their money from clients. Instead, they get paid by investment companies for selling certain investments to their clients.

Finally, wealth managers can earn a combination of both commissions and fees. Using this fee structure, the financial professional charges a fee to their clients but also earns commissions when they sell certain investment products.

Choosing a Wealth Manager

When you’re looking for a wealth manager, it’s important to do your research and put thought into choosing the best advisor for your situation. Here are a few things to consider:

  • The services they provide: When you’re searching for a wealth manager, it’s important to find one that offers the services you need. While most wealth managers will help clients with every area of their finances, it’s best to choose one that has expertise and experience in the areas most important to you.
  • Their business model: Consider how your wealth manager gets paid. It may seem preferable to choose a commission-based advisor so you aren’t paying as much. However, that could also mean they choose recommendations based on commissions rather than what’s actually best for you. If you’re choosing a fee-based advisor, be sure to ask how much they charge for their services.
  • Their investment approach: It’s important to choose a wealth manager whose investment approach works for you. For example, if you have a client with a low risk tolerance, you probably don’t want a wealth manager who wants to invest your money in hedge funds and other high-risk investment opportunities.
  • Whether they are a fiduciary: A fiduciary is a professional that has a legal and ethical responsibility to act in their clients’ best interests. When you work with a fiduciary wealth manager, you know they will put your interests ahead of their own, including recommending investment products based on your goals rather than the amount they can earn in commission.
  • Their qualifications: When you’re comparing different wealth managers, be sure to ask about and compare their qualifications. While there’s no advanced degree required for professionals in this field, they will differ in terms of degrees and years of experience. Many wealth managers may also be Certified Financial Planners (CFP), which is a highly-respected certification granted to professionals who meet certain requirements.
  • How accessible they are: When you’re trusting someone with your money, you want them to be accessible so you can ask questions and seek advice when you need it. While wealth managers don’t necessarily work around the clock, it’s reasonable to expect a wealth manager to be responsive during business hours and address your concerns on a timely basis.

Alternatives to Wealth Management

As we’ve mentioned, wealth managers service a specific type of client — most often high-net-worth individuals. As a result, they aren’t the right type of professional for everyone.

Rather than hiring a wealth manager, clients who don’t meet certain net worth or asset thresholds can hire another financial advisor or financial planner. There are plenty of professionals who offer comprehensive financial planning services without limiting their client base to wealthy individuals.

You may also decide you don’t need the comprehensive services a wealth manager provides. Instead, you can hire a professional like an asset manager or financial advisor simply to manage your investments. In fact, depending on your financial situation and comfort level, you may decide to enlist the help of a robo-advisor, which is a computer algorithm that builds your investment portfolio and manages your investments in a way that’s appropriate for your financial goals.

Our Take

If you don’t meet the requirements to work with a wealth manager, there are plenty of free tools available.

Personal Capital’s free financial dashboard includes all of the tools you need to manage your finances, including a budgeting tool, savings planner, retirement planner, and more. Sign up for free today.

Get Started with Personal Capital

 

 

Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Erin Gobler is a money coach who helps people pay off debt and reach their big financial goals without giving up spending on the things they love.
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