Wealth Management Advisor
The Complete Guide to What We Do
What Is Wealth Management Advisor: Your Ultimate Guide to the Specialized Field of High Net Worth Financial Advisors
Keeping track of all the terms in the financial services industry can be challenging. Wealth managers often get lumped in with financial advisors and financial planners as different versions of the same thing. And in many ways, they are.
But the differences between them are significant, particularly for wealth management firms. What you’re about to read is intended to give you a complete introduction to wealth management, which offers a distinct set of skills and principles to serve a particular audience.
Wealth management is not for everyone. It is not for the kid who just graduated from college. It is not for the middle class worker faithfully saving $500 a month and building up a nest egg that might approach $1 million by the time they retire.
Wealth management is a specialized form of financial planning that exists for high net worth and ultra-high net worth individuals and families.
Most wealth management firms will require minimum investment amounts that are beyond what the vast majority of people have.
Pillar Wealth Management, for example, serves clients who have between $5 million and $500 million in liquid net worth.
If you want a detailed understanding of how wealth management – and our approach to it in particular – differs from typical financial advisors, get our signature book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates, Strategies For Families worth $25 Million to $500 Million.
In this article, you will learn about all the topics listed below. Feel free to read it all, or skip ahead to the most relevant sections for you.
Table of Contents
- What Is Wealth Management?
- What Is Considered High Net Worth?
- What Does a Wealth Management Firm Do?
- Best Strategies of a Wealth Manager – Most Important Section
- What is the Difference Between a Wealth Manager and Financial Advisor?
- What Is the Difference Between Wealth Management and Investment Banking?
- Advantages of Private Wealth Management Firms
- Private Firms Keep Your Taxes Lower
- Private Firms Offer More Experience and Stability
- How to Find the Best Wealth Management Solutions Near Me
What Is Wealth Management?
Wealth management is, in essence, financial planning for the affluent. For help choosing the best wealth manager, refer to our free eBook guide, The Ultimate Guide to Choosing the Best Financial Advisor, For Investors With $5 Million To $500 Million in Liquid Assets.
High net worth households have more at stake when it comes to investing than typical households. It’s about the scale of potential losses and gains. For instance, when the coronavirus crossed the globe in early 2020, the stock market plunged over 40% in just a couple months.
For an investor with $100,000, they might have lost $30,000. And that would sting a lot, and probably make them pretty grumpy about the stock market.
But for an ultra-high net worth investor with $40 million invested in the market who isn’t using good wealth protection strategies, they could have just lost $15 million or more. Just like that – gone.
How would you feel waking up one day to learn you just lost $15 million? Not so good.
So wealth management exists as a distinct specialization because the stakes for wealthy investors are so much higher. What you stand to gain or lose depending on what you do with your wealth has almost nothing in common with what typical investors face.
That’s why Pillar Wealth Management often talks about ‘wealth protection.’ That’s why we put it in the title of our book mentioned earlier. Growing your wealth is important. But protecting your wealth is more important. You want both. It does little good to earn $7 million a year in growth only to lose $20 million in a recession.
You as a high net worth or ultra-high net worth investor can do so much more with your money than a typical person can do with theirs. You have more options. That means, you have more decisions to make, each with pros and cons, risks and rewards. Making these decisions without any counsel or objective advice usually doesn’t go as well. Most wealthy people have whole teams of advisors in various roles.
One thing wealth managers have in common with financial advisors is that both work in an advisory capacity. We are not banks. You don’t ‘deposit’ your money in a wealth management company and let them take care of it. Financial advisors and wealth managers are relationship-driven disciplines.
Wealth management isn’t just about numbers, data, and performance. It’s also about feelings and emotions related to security, achievement, and empowerment. Here are 4 unpleasant emotions you’ll feel if you don’t have a wealth manager.
What Is Considered High Net Worth?
As time goes on, these sorts of definitions will change. And regardless of how terms like high net worth and ultra-high net worth get defined over time, each private wealth management firm will generally set their own boundaries for which clients they will work with.
For now, high net worth has generally meant anyone with more than $1 million in liquid assets, but less than $30 million. Ultra-high net worth refers to anyone with over $30 million. Again, as time goes on, these amounts will change.
The idea is, the ultra-wealthy have needs different from the wealthy, and when you cross the line between high net worth and ultra-high net worth, you’ll notice the difference.
The important term here is ‘liquid’ net worth. If someone owns a house in a city with a high cost of living, and their house is worth $800,000 and they have $300,000 in various IRAs, 401ks, and other accounts, that person does not have high liquid net worth. The house is not liquid.
For this reason, the value of the estate of a high net worth household will often be over $2 million. But you must have at least seven figures of liquid, investable cash in order to be considered high net worth.
What Does a Wealth Management Firm Do?
What is included in wealth management? The most essential goal is to assess each client’s personal financial situation and understand their lifestyle dreams so we can develop a truly customized financial plan that will allow them to achieve those dreams.
In other words, we don’t start with performance. We end with performance. Investment performance happens once we know its purposes as they relate to your life, and have created a plan that will achieve those goals.
To create a customized plan, a wealth manager like Pillar will begin with a few questions. These are the foundation of everything that follows. Questions include:
- What is your ideal retirement age?
- What is your desired monthly income now?
- What is your desired income during retirement?
- What are your estate planning goals and dreams?
- What are your lifestyle hopes and dreams – now and in the future?
A wealth management advisor will look at your answers to those and many other questions, consider your financial assets across all your accounts, and then build a plan to help you achieve those goals and dreams.
How that plan looks will depend on the wealth manager you choose to work with.
But here’s where wealth managers start to differ from each other. Too many stop here once the plan is created and put to motion. And in doing so, they have denied a fundamental truism of life:
Not everything will go according to plan.
Life is messy. Some messiness happens within families, like costly medical problems, divorce, and business failures. Some messiness happens outside, like pandemics, natural disasters, and recessions. But messiness will enter your life, one way or another.
The kind of wealth management plan you should expect from the best wealth managers will incorporate the certainty of negative life events, as well as positive ones, along with your desired lifestyle outcomes.
Again, this is why the single best resource we can recommend to you is our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, For Investors With $5 Million To $500 Million in Liquid Assets
Best Strategies of a Wealth Manager – Most Important Section
You want to know a secret about the plan your wealth manager creates for you?
It is guaranteed to fail.
Here’s what we mean: Imagine creating a plan when you’re 40 years old. It invests with a particular asset allocation, targets a retirement goal of age 60 with a particular net worth at that time, and allows for a certain monthly income and your desired lifestyle.
But then, when you’re 48, suppose your mother-in-law develops Alzheimer’s disease. She’ll require 24-hour care for many years. It will not only cost a lot of money, but will force you to re-invent your schedule. It will affect your long term plans.
That plan you made eight years back no longer applies to your life.
We could invent 1000 scenarios like this to describe different ways every financial plan becomes obsolete, usually within five years or less.
With that in mind, here are five of the best strategies you should expect from any private wealth management firm you’re considering working with.
1. Ongoing Plan Adjustments
The only way to keep your plan relevant and position it for success is to continually update it. This is why it makes little sense to pay a financial advisor a thousand bucks to develop a plan for you, and then expect to just ‘set it and forget it’ from there.
It won’t work. Sure, it might work for a few years. But the moment something significant changes – either in your life or in the world around you – that plan will no longer work as designed.
A good wealth manager will have a process for making targeted, ongoing adjustments that will keep your investment portfolio performing at the most optimized level.
2. Balancing Performance with Risk
When we say ‘optimized’ performance, this is what we mean. You don’t want a wealth manager who goes for the highest possible performance. Why? Because the highest performance will carry with it the highest risk.
There’s no way around that truth. High risk equals potential for higher performance, but also potential for greater loss. Low risk equals less potential for growth, but also less loss.
What you need is a wealth manager who knows how to find the optimized balance between these. You don’t want low growth from too-little risk. But you don’t want extreme growth one year that evaporates at the first sign of a recession or market downturn.
You want steady, optimized performance that does well in good times and in bad times.
3. Minimizing Costs
Frankly, too much emphasis is placed on the fees charged by wealth managers and financial advisors. Yes, the fees matter, a lot. But consider this:
Suppose you have a wealth manager who charges 1% annually of the assets under their management – a fairly common fee. And that fee covers everything, including all extra services, the ongoing adjustments, phone calls, strategic planning sessions, estate planning advice, and so much more.
Then, suppose another wealth manager offers you 0.8%. Should you switch? That 0.2%, if you have $20 million under their management, is $40,000. Certainly something to consider since you’ll pay this every year.
But what too often doesn’t get asked is, what other costs, fees, and hidden charges is that second wealth manager not telling you about? Are they making commissions by recommending particular investment options?
Are you paying higher fees for the funds they’ve invested you in? Are you paying higher taxes, such as avoidable short-term capital gains?
These other charges can add up to hundreds of thousands of dollars per year, easily, for high net worth and ultra-high net worth investors.
That $40,000 difference in the base fee from the wealth manager is only one cost of many that you could be paying, without realizing it.
The best wealth managers work tirelessly to reduce and eliminate as many other costs as possible.
You cannot look at just the base fee. All this and much more gets discussed with more detail in Improving Portfolio Performance, The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity, another free eBook available from us.
4. Acknowledging the Unknown Future
Remember – every plan will fail, because you don’t know what will happen in the future. You need a wealth manager who understands this, and doesn’t pretend otherwise.
Too many financial advisors and wealth managers just trot out plans with various levels of risk, asset allocations broken up into stocks, bonds, and cash, and then ask you to pick the one that “feels” right for you.
This is highly irresponsible behavior from a wealth manager!
Before you talk about plans, you have to talk about what might derail them. Any wealth manager who responds to your concern about the plan falling short by just regurgitating the line the industry is required to say – that past performance is no guarantee of future results – is avoiding the heart of your concern and the substance behind it.
Here’s what you want instead:
5. Has a Plan to Handle Market Volatility and Life’s Unpredictability
We touched on this earlier when talking about ongoing adjustments, but it’s more than that. First, your wealth manager needs a process for how to make those adjustments.
What are you going to change? By how much? Why that amount? How do you know it will improve your long term stability and not make things worse?
Second, and even more important, your wealth manager should have a plan for anticipating those events in advance. You shouldn’t be reacting all the time.
You shouldn’t be playing from behind. You should be out in front of negative events before they happen. They should be built in to your plan.
When we need a good laugh, one thing we like to do is watch ‘experts’ talk about what they expect the market to do over the next year. No Hollywood movie or television show offers greater amusement than these laugh riots.
Here’s an example from January 2020, from the Motley Fool.
- There will be no recession in 2020
- The stock market will have another positive year
- The market will experience at least a 10% correction
- Interest rates will remain unchanged the entire year
Comedy this good should be winning awards. And that’s just the first four. There are 16 more after that.
Marketwatch predicted that “the U.S. stock market in 2020 will enjoy an excellent year,” and that “With the S&P 500 currently sitting on a 3.1% month-to-date gain, and the Nasdaq Composite on a 4.6% gain, the bulls can hardly contain their glee.”
Yet, within one month, the market had crashed by double digits as the coronavirus began its destruction of the global economy.
Did you notice what market predictors do, in the Marketwatch quote?
They use past performance to predict future results – the exact opposite of what every wealth manager and financial advisor is required by law to tell all their prospective clients.
So then, after COVID-19 wrecked all their January predictions, what were they doing by April and May? Making predictions about the rebound! Who is to say these predictions have any more validity than the absolute travesties they foisted on the world in January?
These people don’t have a plan. They are reacting, reacting, reacting. They are riding the waves, up and down, wherever the sea wills their ship to tread.
They are not experts in predicting anything. They are experts at telling us what just happened and then getting paid to create financial fiction and call it insightful.
That’s not what you need from your wealth manager.
You need someone who can build into your own personal customized financial plan the anticipation and certainty of market volatility, as well as your own life’s unpredictability.
The best analogy for investing is, it’s like standing on top of a dark staircase. You can feel the next step, but you can’t see beyond it, or what’s at the bottom of the stairs. That’s investing.
Talk to an Elite, Private Wealth Management Firm Now
What is the Difference Between a Wealth Manager and Financial Advisor?
All wealth managers are financial advisors, but not all financial advisors are wealth managers. As stated earlier, wealth managers only work with high net worth or ultra-high net worth clients.
Some set minimums at $1 million, some at $20 million, and everywhere in between. Again, Pillar requires a $5 million minimum in investable assets.
Wealth managers generally offer greater customization, more personalized, boutique service, and have fewer clients so they can invest more time in the relationship.
This is why Pillar Wealth Management only takes on a certain number of new clients each year.
Wealth managers also frequently offer many additional services that affluent households need. These can include:
- Tax accounting and strategic planning
- Retirement planning
- Legal planning
- Estate planning
- Risk management
- Trust services
- Banking services
- Philanthropic planning
Most wealth managers will farm the detailed work in these areas to experts in these fields they trust who are part of their networks. So they can help you find the team of elite advisors you need to secure your retirement and protect your wealth.
But most wealth managers also possess enough expertise in these areas to develop plans and strategies, make detailed and quality recommendations, and advise you as you make your decisions.
Some charge extra for these services. Some do not.
Pillar includes all of these additional services as part of our simple percentage fee. We do this because these extra services aren’t optional for high net worth households. These are essential services.
You will have to make decisions in most or all of these areas at some point in your life, so we don’t believe you should have to pay extra for them.
What Is the Difference Between Wealth Management and Investment Banking?
Some of our high net worth friends have confused these two terms as well, so it’s worth a quick clarification.
In general, an investment banker offers financial services to businesses and corporations, not individuals. Now, because many high net worth and ultra-high net worth investors also own businesses, there is some overlap here as well.
That’s why Pillar and many of the best wealth management firms include services like M&A, business exit planning, and stock splits in our single-fee wealth management package.
But investment banking companies won’t get into services like retirement planning, tax planning, or estate planning, and won’t generally offer anything to individuals.
Advantages of Private Wealth Management Firms
One of the most important things to understand about wealth management is that private firms will, almost universally, deliver better service than big banks and brokerage firms. It’s not hard to understand why, but it boils down to this:
Large firms are system-driven, and private firms are relationship-driven.
Large firms use the same formulas, blueprints, and options for most of their clients. They ask the same questions, use the same forms, and input your data into the same software as the young guy with $15,000 to invest.
They do this because it’s efficient, easier to train for new staff, and easier to manage. All this makes sense and there’s nothing wrong with it.
But it’s not customized. They might use the word, but they have no idea how far short they’re falling of its true meaning. And high net worth families need customization, especially as you get closer to retirement.
Private wealth management companies begin with the relationship, so you can ask the questions you care about most, and talk about how to integrate those into a truly customized plan. Questions such as:
Can I really retire at age 50?
How much should I set aside for unplanned future major expenses?
Will my passive income and investment growth be enough to sustain my lifestyle?
Should I sell one of my properties?
Should I sell my business?
Large publicly traded firms have no process for definitively answering questions like this.
Here are some other advantages of private wealth management companies.
Private Firms Keep Your Taxes Lower
Tax laws change frequently, especially the smaller less headline-driven rules. And important dates and deadlines sneak up on you, requiring you to take certain actions to avoid penalties, or make decisions that will affect your retirement income and withdrawals.
Large firms are much more likely to overlook these details, which are different for everyone.
Morgan Stanley has over 15,000 ‘wealth managers,’ though they are really just financial advisors. It is extremely unlikely that all of these workers are staying on top of ever-changing tax laws and strategies that shift as you age.
In reality, only a fraction of them do. Most are fresh out of college, gaining experience, learning the field, so that one day they can strike out on their own and open a private wealth management company.
Don’t be their guinea pig while they work for the big firms. 10 more ways private wealth management companies can best serve ultra-high net worth investors anywhere.
Private Firms Offer More Experience and Stability
Many large firms hire graduates right out of college, and then call them wealth managers.
What does a 25-year old know about how it feels to have $30 million as you approach retirement? Large firms have so many advisors and managers that it dilutes the talent.
There are a handful of wealth management experts working at the large firms, in all likelihood. But the chances of you getting to work with them are low.
They probably have full caseloads, and your portfolio will get passed off, re-assigned, and shifted around every couple years as their personnel situation changes.
You will not get to work with the same wealth manager for decades, like you want to.
How to Find the Best Wealth Management Solutions Near Me
What matters more than anything, when choosing a wealth manager, is their process for adjusting your financial plan on an ongoing basis, as your life situation changes, and as the world changes around you.
How do they integrate your goals and dreams into your financial plan, and how do they keep that plan tuned to those goals, year after year?
These are THE questions you need to answer when looking for a wealth manager.
You want your investments to grow. But more than that, you want to have security and stability.
You want to know that as you plan and prepare for retirement and then live it out, that your money will not run out and that you’ll achieve all the financial and lifestyle goals you set out to achieve.
That matters far more than where your wealth manager is located.
There are four steps in identifying your best match with a wealth manager. See more about these 4 steps here.
First, evaluate yourself – know what you want. Until you know what you want, every wealth manager will seem like a pretty good option. You won’t be able to recognize the differences well enough.
Second, learn how to spot the elite wealth management firms. This is about much more than promising good performance, which of course everyone does. Do they have a clear and well-developed process – with data – for how they achieve that performance?
Here are five qualities that define elite wealth managers:
1) They measure your plan’s progress with ongoing quarterly stress tests
2) They believe in strategic passive money management, not market timing
3) They keep your costs as low as possible
4) They use performance as only one measure of progress
5) They are a fiduciary and independent advisor, free from conflicts of interest
Third, you must acknowledge the unknown future. We touched on this before, but it must be said again and again. Your wealth manager must acknowledge and anticipate the unknown and the unexpected, but so must you!
Otherwise, your wealth manager will feel like a nag, always reminding you of what could happen and why he’s doing your planning the way he’s doing it.
You must be in agreement about the reality of financial planning. If you can’t, then you’re not a good match for each other. Remember the dark staircase.
Finally, empower yourself with knowledge about financial advisors and wealth management.
Again, we strongly encourage you to get our authoritative guide, The Ultimate Guide to Choosing the Best Financial Advisor, For Investors With $5 Million To $500 Million in Liquid Assets.
That guide expresses so clearly and thoroughly all the most important issues to consider when choosing the best advisor or wealth manager, we truly wish every person in the country would read it.
And, to learn more about Pillar’s approach to investment performance, you can also get our other eBook, Improving Portfolio Performance, The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
As a final resource, if you’ve reached the point where you want to start talking to prospective private wealth management companies, here are 10 questions to ask them before working with them.