Section 01 What is wealth management?
Wealth management, synonymous with wealth planning, is the art and science of managing an individual’s assets. Tailored to the individual, holistic wealth management considers your values, goals, and appetite for risk so you can live more and worry less.
While each wealth management firm follows its own methodology, wealth managers generally tailor their offerings around four key pillars.
Shield your wealth against myriad known and unknown risks through appropriate portfolio diversification, insurance planning, tax management, and more to give you flexibility and limit downside risk.
Seek growth opportunities that go deeper than beating a benchmark. A good wealth manager individualizes your plan, whether you’re interested in ESG, income-producing assets or building your own business.
You've worked hard for this life, and a good plan builds the flexibility and balance to enjoy your wealth how you wish today and without sacrificing your long-term goals down the road.
Build a plan to pass your assets onto heirs or through charitable donations through comprehensive estate planning and collaboration with the rest of your advisory team.
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Section 02 How wealth management differs from financial planning
Wealth management and financial planning are terms often used interchangeably, but there are key differences between them.
At its heart, financial planning is about understanding your financial goals and generating a plan that will empower you to reach those goals. To accomplish this, a financial advisor will offer advice around (but not limited to):
Debt reduction strategies
Wealth management, by comparison, builds upon the core tenets of financial planning by layering on additional tools and specializations that aren’t typically necessary until you’ve accrued sizable wealth. At that point, your financial picture has become more complex and it becomes more important to consider services, such as:
Cash flow management
Accounting and tax services
Will and trust organization
Advanced estate planning
Section 03 Who needs wealth management?
While financial planning can help anyone, wealth management services are typically something you would add as you accumulate wealth. The amount you need to accumulate varies based on several factors, including your age, complexity of your financial picture and potentially the requirements of the firm you’re working with.
All that said, typically it makes sense to begin considering wealth management once you’ve accumulated around $250,000 of investable assets or more. If you’re not quite there yet, that’s ok. In fact, many people will start out with financial planning, which helps them grow into wealth management as they execute upon their plan over time.
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Section 04 What's included in wealth management?
To many, the term wealth management is synonymous with investing, but there’s a lot more that goes into this service. For a wealth management strategy to be effective, it must be all-encompassing and highly tailored to you.
Goal Setting and Planning
Before you can take any journey, you must have a destination in mind. Wealth management is no different. Where do you want to go in life? That’s why a good wealth manager will start by listening. They will start by listening and then ask questions to get you thinking about your goals in life. Your goals are destinations.
Once you know your destination, you can plan your route. By truly listening to you and understanding your ambitions, your advisor can help prioritize goals and assemble an array of flexible financial options to get you there.
Managing Cash Flow and Liquidity
If you are at the point in your financial life where you are considering wealth management services, you’ve probably established a savings regimen and have a well-stocked emergency fund. Still, there is value to be gained from an outside, expert perspective to ensure your cash flow is optimal.
For example, you may believe that you have enough liquid savings to see you through a prolonged market downturn or financial duress, but you may have overlooked one, or multiple, risks which would signal that you should have a higher percentage of your portfolio set aside as cash. Or, perhaps you want to raise some cash to seize a market opportunity. A wealth manager will ensure you have the right amount of liquidity to manage risk and remain opportunistic.
Growth through investments has, historically speaking, been one of the most effective means to grow and accumulate wealth over time. But no investor is quite the same as the other, and a wealth manager will work hard to tailor your strategy to your individuality. Your goals, your timeline, your risk tolerance, and your values should all influence the advice that you receive.
Generally, the investing strategy included in wealth management will include a mixture of general investing advice, personalized investments, portfolio management and advanced investment vehicles.
While most people do not immediately think of insurance when they think of wealth management, it can play an important role in a comprehensive wealth management strategy.
As such, the engagement with your advisor is likely to begin with an evaluation of your existing coverage to determine whether it is appropriate, or whether you should consider additional types or levels of coverage given your risk exposure. This may include: disability planning, term life insurance, permanent life insurance and long-term care planning.
A great wealth manager doesn’t simply execute your strategy, they help you see the big picture. They'll leverage their expertise to regularly adjust your plan as necessary, accounting for emerging trends and rotations in the market, as well as laws and regulations that may affect you. Along the way, they'll offer general education and insights to keep you informed when sweeping changes impact markets or the economy.
If you like to be more hands on, your advisor is there to help and guide you. If you’re considering a particular investment, for example, they can help you confirm or deny your thesis, or else approach it from a new perspective that you may not have considered.
A large part of wealth management is about managing both known and unknown risks that might otherwise derail your financial plan. Taxes—income taxes, capital gains taxes, gift taxes, estate taxes, generation-skipping transfer taxes (GSTT)—are one such risk that can be a performance drag on your plan if they are not properly accounted for.
The good news is that, as a known risk, taxes can be planned for and strategies can be put in place to minimize their impact to your wealth. With this in mind, tax management will be central to a wealth managements strategy.
Your Compensation Plan
If you have a complex employee compensation plan your wealth advisor can help you understand what you are being offered, what you are entitled to, and can assist in the valuation of your plan.
Stock options, deferred compensation, and other forms of equity plans can all be excellent means of building wealth, particularly if your employer does well. Should you exercise your options and hold stock, or exercise and sell? Managing this aspect of your compensation package requires a strategy to optimally time when to do it while also keeping an eye on your taxes and overall asset allocation.
Many wealth management firms bundle retirement planning into their discussions about investing, and that makes sense: Investing consistently and regularly over the course of your career is the surest way of growing the nest egg that you will eventually depend on during retirement. That being said, more goes into retirement planning than just investing. Once you’ve built your wealth, you also need a plan for how you will use that wealth.
Your wealth management strategy should also factor in questions of estate planning. A great wealth advisor will ask you key questions about how you want your wealth managed and divided upon your death, while also ensuring you are taking advantage of your options to reach your personal goals today.
For example, do you intend to leave an inheritance to your children, grandchildren, or other heirs? Do you have goals for charitable giving? If you are a business owner, do you have a plan in place for business succession?
A few documents to consider: your will and trust, beneficiary assignments and medical powers of attorney.
Section 05 Is wealth management worth it?
In order to understand whether wealth management is worth it to you, it’s important to understand the true value that it brings to your financial plan.
When you hire a wealth manager, you aren’t getting a cookie-cutter financial plan or investment advice from a robo-advisor. You’re hiring a professional or team of professionals whose job it is to listen to you, understand the goals you have for your money, and make those goals a reality. You’re getting a plan that is custom built for your goals, your values, your risk tolerance.
If you’re worried about the costs associated with hiring a wealth manager, it can be helpful to understand the different ways in which a wealth manager might be compensated.
4 common ways wealth managers are paid
Fee-based planning: The client pays the wealth manager different fees for different services. Common fees include an account set-up fee, annual retainer fees, and fees when executing specific trades, etc.
Percentage of Assets Under Management (AUM): The client pays the wealth manager a pre-agreed percentage of the total assets being managed. Many clients prefer this form of compensation, as it incentivizes performance.
Product commission: The client does not pay their wealth manager directly. Instead, the wealth manager is compensated by outside parties when they sell insurance policies, annuities, or other financial products.
Hourly rate: The client pays an hourly rate for work done by the wealth manager. Most wealth managers do not charge like this, but some do.
Section 06 Choosing a wealth management company
If and when you decide that hiring a wealth manager is the right move for you, the next step will be to evaluate a few firms and select one that you believe will effectively protect and grow your money.
One of the best ways of evaluating a wealth manager is simply having an honest and open conversation. During this conversation, you’ll want to ask them certain key questions that will help you gain some insight into their investment strategy and what you can expect if you decide to move forward working with them.
Conversation starters with an advisor
What is your investment philosophy?
How do you benchmark performance?
What services aside from investing do you offer?
What are the fees?
If my goals change, how might our engagement change?
Can I see an example of a financial plan?
All investments carry some level of risk including the potential loss of all money invested. No investment strategy can guarantee a profit or protect against a loss. Working with a Wealth Management Advisor or any other financial services provider is not a guarantee as to future investment success.