The past few months have been a time of crisis. Economies all around the world have been subject to some severe shocks that most of us haven’t witnessed in our lifetimes.Portfolios of some high-net-worth individuals have witnessed steep drawdowns.
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In such times of crisis, clients pay increased attention to the work of their financial advisers and ask whether they have fulfilled expectations. Those who did not have professionals managing their wealth may wonder whether they would have been better off with a wealth manager or financial advisor.
If you have never had anyone dedicated to managing your wealth or if you are wondering what exactly is a wealth manager, then this guide will provide you some important answers. The terms financial advisor and wealth manager are often used interchangeably.
However, they are two very different things. In this guide, we will discuss some key topics regarding wealth management.How much money do you need for a wealth manager? Are wealth managers worth it? What is thedifference between a wealth manager and a financial advisor? And importantly, how to find the best wealth manager near me?
What is the difference between a wealth manager and a financial advisor?
A wealth manager is a type of financial advisor. The simple answer to the question ‘What is the difference between a wealth manager and a financial advisor’ istwo words – clientele and services. A wealth manager’s clients are high-net-worth as well as ultra-high-net-worth individuals.
They are individuals who have a diverse array of needs. Financial advisors, on the other hand, can serve clients of all income and net worth profiles.
Besides offering conventional services like tax planning, retirement planning, insurance and risk management, financial planning, legal planning, and investment management, wealth managers also focus on areas like philanthropic planning, estate planning, and succession planning. These are niche areas that individuals with large amounts of wealth typically encounter.
Wealth management is broader than just investment advice. It includes all aspects of an individual’s financial life. In fact, there are instances when a wealth manager coordinates the services of outside experts to create the best strategy for a client.
Sometimes, advisory entities like M&A firms bring in wealth managers to provide inputs to an entrepreneur from a personal finance angle.One of the benefits of working with a wealth manager is that the client has to only deal with one person which makes the communication a lot more efficient.
Financial advisor is a term used to define someone who may be either offering general financial services or specializing in something narrow – like insurance, investment advice, or tax planning for clients who work in specific industries.
Financial advisors are generally set up to handle more volume rather than offer a hands-on approach that a wealth manager might.If you need a very specific kind of service that focuses on one area, then you may be better off with a financial advisor who specializes in that area.
The most successful wealth managers, as pointed out in this book about choosing the best advisor for investors with $5 million to $500 million in liquid assets, are the ones who focus on a low-volume-high-customization approach.
So, to summarize, wealth managers are a very specific type of financial advisor that work with high-net-worth individuals and offer a broad array of services that cover all aspects of an affluent person’s financial life.
Considering the fact that wealth managers focus on quality more than quantity, the service has a personal touch and is more customized rather than a more standardized approach offered by a generic financial advisor.
You may be thinking that hiring a wealth manager requires you to be super-rich. While there is no doubt that wealth managers cater to individuals with large amounts of wealth, one does not have to be extremely wealthy to engage the services of a wealth manager.
Most wealth managers will spell out the minimum account sizes that they expect prospective clients to have. Pillar Wealth Management, for example, works with account sizes ranging from $5 million to $500 million. Bear in mind, the minimum account size is the amount of money that you should have available for making investments.
Even if you have lesser funds available for investing, you may still consider a wealth manager because of the variety of services that you can avail of. Wealth managers are not just investment managers. They look at all aspects of your financial life and provide a comprehensive solution.
In conclusion, there is no single formula or number that provides the answer to the question ‘How much money do you need for a wealth manager’. Ultimately, you have to weigh the fee that you will pay a wealth manager and the value of wealth management services that you get in return.
If your account size is large, then even a 1% saving in taxes along with a 1% improvement in portfolio returns can work out to a few hundred thousand (or even a few million) dollars.
Are wealth managers worth it?
Wealth managers make a lot of sense for someone who has a high net worth and requires a focused and customized approach to financial management.Are wealth managers worth it? Yes, they are if they can provide such holistic management of finances.
For example, at Pillar Wealth Management, we bring more than 60 years of combined expertise in areas like expense minimization, tax efficiency, retirement planning, mapping financial goals with investment decisions, risk and portfolio management, and advising on the financial aspects of major life events.
While the various offerings of a wealth manager might sound like a laundry list, they actually work quite effectively when practiced in a coordinated manner. Let us assume that you are about to sell your business that you have spent years building painstakingly.
If you plan to retire after selling the business, then one natural question that you would ask yourself is whether the proceeds from the sale will be enough to retire. That is where retirement planning comes in.
You may also wonder how much out of the proceeds will be paid as taxes. That is where your strategies to minimize taxes come in. You will also wonder whether the income generated by investing the windfall will be enough to sustain your current lifestyle.
That is where investment management and expense management come in. So, there are many aspects of a seemingly straight-forward transaction that require a professional approach.
Similar to the example above, there are many other life events like relocation, retirement, a health crisis, or divorce. You will start to notice that everysuch milestone event has many moving parts that need to be sorted.And the decisions taken during the important moments will impact your life for years to come.
A wealth manager who can understand your particular situation and then create a tailored approach that works for you is certainly worth the money. An advisor who just specializes in a few narrow areas like tax or retirement planning may not be able to adopt a multi-pronged approach.
In such a case, you either leave the other areas unattended or co-ordinate multiple professionals to do multiple things for you. And they may not all work in sync with each other.
Professional wealth managers worth their salt, in our opinion,should have the following qualities:
- A long and proven track record of maximizing returns while minimizing drawdowns during economic downturns.
- Be able to sit with you one-on-one and really understand your financial goals, personal goals, and risk profile.
- Dedicate the time to regularly track how well your investments are progressing towards fulfilling your life goals.
- Help you with making smart decisions year after year that allow you to minimize your expenses and taxes.
- Act as an independent fiduciary that has your best interests at the center of all activities and services.
Best wealth manager near me
Finding the best wealth manager can seem like a daunting task initially. However, if you follow some basic guidelines, then the entire process is actually quite simple. You only need to put in some time and effort from your end.
Know your needs and priorities
The first thing you would want to do is have an idea of what you want from your wealth manager. Make a list of services or areas of financial management that are the highest priority for you.
Then, search for reputed wealth managers who specialize in those areas. As pointed out above, wealth managers have a pre-defined account size that they work with. So, you have to make sure that your portfolio size is within that range.
Finding the best wealth manager near me can be as simple as going online and searching for one. Make sure you read any reviews or opinions to get a neutral perspective. If the wealth manager is well-known, then he/she probably has written articles or blogs for mainstream media. Read their articles to get to know their philosophy, and whether that philosophy matches your thinking.
It is very important to examine the credentials and qualifications of a prospective wealth manager. You can easily check the educational background by visiting LinkedIn or checking the wealth manager’s website (if there is one).
Next, you can also look for any professional designations like CFP, CFA, or comparable qualifications. The CFP Board can help with CFP verification. You can also check records of a wealth manager by approaching the Financial Industry Regulatory Authority (FINRA).
If a wealth manager cites memberships to organizations or non-profits, then you can check with such organizations directly to verify the membership.
Ask every prospective wealth manager whether they will have custody of your assets or if they use a third-party custodian to hold your assets. This filter is very essential because it protects you from the possibility of fraud.
You want the entity advising you to be independent of the entity that services your accounts, executes the trades, and reports those transactions to you. Nobody wants to be caught up in a Ponzi scheme or lose their hard-earned wealth.
Speak to the most promising managers
You can do all the research you want, but ultimately, speaking with someone face-to-face gives you a deeper insight into a person’s mind. Once you shortlist the most promising wealth managers, try and schedule a meeting or a phone call with each one. Ask plenty of questions and notice whether the wealth manager is asking you questions as well.
You want the wealth manager to be proactive in getting to know you and your life goals. You do not want a wealth manager who sees you merely as just another number or apply their cookie-cutter method regardless of your situation. After all, every individual’s financial situation is unique and you need a wealth manager who can customize their approach for your needs.
Leverage your personal network
Another great way to meet the best wealth manager near your location is to discuss the topic among family, friends, and work colleagues. There cannot be a more genuine review than the one coming straight from someone you know and trust.
Hutch Ashoo and Christopher Snyder are the expert founders of independent, fee-only, and fiduciary wealth management firm Pillar Wealth Management. If you would like to speak with them or simply ask any questions about how custom and trusted wealth management advice is offered to high-net-worth individuals with $5 million to $500 million in investible assets, then feel free to start a conversation.