Wealth management is an investment advisory service that combines various financial services to address the multifaceted needs of affluent clients. Through a consultative process, an advisor gathers information about the client’s preferences and specific situation, and subsequently formulates a tailored strategy that leverages a wide array of financial products and services.
Often, a holistic approach is taken within wealth management. To address the complex needs of clients, a broad spectrum of services—such as investment advice, estate planning, accounting, retirement, and tax services—might be provided. While fee structures can fluctuate across comprehensive wealth management services, fees are often based on a client’s assets under management (AUM).
Key Takeaways
- Wealth management combines various financial services to cater to the needs of affluent clients.
- A wealth management advisor is a high-level professional who manages affluent clients’ wealth comprehensively, usually for a single fee.
- This service is particularly suitable for wealthy individuals with diverse needs.
Understanding Wealth Management
Wealth management is more than mere investment advice—it encompasses all facets of a person’s financial life. Instead of disjointed pieces of advice and distinct products from multiple professionals, high net worth individuals might benefit more from an integrated approach. In this method, a wealth manager coordinates the various services required to manage their clients’ assets while developing a strategic plan for both current and future needs. This can include wills, trusts, and business succession plans.
Many wealth managers are versatile across different financial fields; however, some choose to specialize in particular areas, such as cross-border wealth management. This specialization could depend on the wealth manager’s expertise or the primary focus of the firm within which the wealth manager operates.
In some cases, a wealth management advisor may need to coordinate with external financial experts, in addition to the client’s own service professionals (such as attorneys or accountants), to craft the most beneficial strategy. Additionally, some wealth managers offer banking services or advice regarding philanthropic activities.
Wealth Management Example
Wealth management offices often house a team of experts and professionals ready to provide counsel across various sectors. For example, consider a client who has $2 million in investable assets, alongside a trust for their grandchildren, and a recently deceased partner. A wealth management office would not only invest these funds in a discretionary account, but also provide the necessary will and trust services for tax minimization and estate planning.
Advisors within investment firms may have heightened expertise in investment strategies, while those working for large banks might concentrate on trust management, available credit options, overall estate planning, or insurance policies. Therefore, the expertise may vary depending on the specific firm.
Wealth Management Business Structures
Wealth managers may be part of small-scale businesses or larger firms, often associated with the finance industry. Depending on the business structure, wealth managers might hold differing titles, such as financial consultant or financial advisor. A client might work with a single designated wealth manager or have access to members of an entire wealth management team.
Fees for a Wealth Manager
Advisors may charge for their services in various ways. Fee-only advisors charge an annual, hourly, or flat fee, while commission-based advisors earn through the investments they recommend. Fee-based advisors combine a fee with commissions on the investment products they sell.
A recent survey of financial advisors highlighted that the median advisory fee for AUM up to $1 million is around 1%, with larger balances often resulting in reduced fees. Fully-automated robo-advisors intended for ordinary investors commonly charge far less than 1% per year of AUM and come with low initial account balances.
Credentials for Wealth Managers
It’s valuable to verify the credentials of wealth managers to determine which designations and training suit your needs. Key professional advisor credentials include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Personal Financial Specialist (PFS). Many certifying organizations provide the means to verify a professional’s good standing or disciplinary history.
The Financial Industry Regulatory Authority (FINRA) offers a tool that elucidates professional designations. This can also help ascertain if an organization requires continuing education, handles complaints, or permits credential verification.
Strategies of a Wealth Manager
Wealth managers start by creating a plan to maintain and augment a client’s wealth, considering their financial situation, goals, and risk tolerance.
Significantly, all aspects of a client’s financial picture—including tax planning, wills, and estates—are coordinated to fortify the client’s wealth. This can correspond with financial projections and retirement planning.
Following the development of the initial plan, managers regularly meet clients to update goals, review, and rebalance the financial portfolio. Concurrently, they consider the necessity of additional services, always aiming to remain in the client’s service throughout their lifetime.
What Do Wealth Managers Earn?
As per Indeed, the average salary for a wealth manager in the United States in 2022 stood at $79,395.
Is a Wealth Manager the Same as a Financial Planner?
While some financial professionals perform both functions, a key distinction between financial planners and wealth managers is that wealth managers focus on assets and investments, while planners account for daily household finances, insurance needs, and more.
The Scope of Wealth Management
As of 2020, the wealth management industry managed assets nearing $112 trillion globally. This figure is anticipated to grow to $145.4 trillion by 2025.
Related Terms: Financial Services, Estate Planning, High Net Worth Individuals, Retirement Planning, Tax Services, Investment Strategy.
References
- Advisory HQ News Corp. “What Are the Average Financial Advisor Fees & Investment Fees Being Charged in 2021?”
- Michael Kitces’ Nerd’s Eye View. “Financial Advisor Fees Comparison — All-In Fees for the Typical Financial Advisor?”
- American Institute of CPAs. “Disciplinary Actions”.
- Certified Financial Planner Board of Standards. “Verify an Individual’s CFP Certification and Background”.
- Financial Industry Regulatory Authority. “Professional Designations”.
- Indeed. “Wealth Managers”.
- Price Waterhouse Cooper. “Global Assets under Management set to rise to $145.4 trillion by 2025”.
