What’s a Wealth Manager? Do I Need One?
Key Points:
A wealth manager is a type of financial advisor who works with High Net Worth and Ultra High Net Worth individuals and families.
Unlike other specialty advisors, wealth managers are trained in a wide variety of financial areas and perform holistic financial services for their clients.
Wealth managers work best for people with highly diverse, complicated financial lives.
Like other financial advisors, wealth managers will start by developing a rich portrait of your financial circumstances and personal goals, and tailor a bespoke plan to your exact specifications and objectives.
There are a range of factors to consider when deciding between different wealth managers, including fiduciary status, certifications, compatibility, and more.
A wealth manager is a type of financial advisor who works with high-net-worth individuals (HNWIs) and/or ultra-high-net-worth individuals (UHNWIs) to holistically address their financial needs. Wealth managers’ services span a number of interrelated areas, including legal planning, estate planning, retirement planning, accounting, tax services, investment advice, and more.
Most wealth managers charge according to a single set fee, based on a percentage (often 1%) of their clients’ assets under management (AUM). AUM-based fees benefit wealth managers because it means their earnings potential is theoretically limitless. They benefit clients as well, because it ties wealth managers’ success to their clients’ success; they only earn money when their clients’ portfolios perform well, and they can make more money by doing all they can to optimize their clients’ portfolios.
Unlike other, more specialized advisors — e.g.: investment advisors, tax planners — wealth managers are trained in a wide variety of areas, and therefore function as single points of contact for all aspects of an individual’s financial life. This is particularly beneficial for individuals with very complicated financial lives. By using wealth managers, these individuals avoid the hassles, complexity, and possibly increased costs associated with hiring a separate specialist for every function.
Additionally, wealth managers tailor bespoke financial plans to each of their clients’ individual scenarios. They do not use a one-size-fits-all approach.
Their plans incorporate a variety of factors about their clients, including the size and contents of their estate, their financial goals, their personal values, their investment preferences, their risk tolerance levels, and more. Wealth managers synthesize all of this information into a plan fitted to the exact needs of each client.
All wealth managers work with affluent clients, but not every affluent person needs a wealth manager. Wealth managers are most effective when an individual has a highly complex, diverse financial life, and needs a single person to make it orderly and optimized.
Do I Need a Wealth Manager?
In evaluating whether your specific financial circumstances would benefit from the expertise of a wealth manager, there are a number of factors to consider. First, come up with an accurate estimate of your net worth. While not all wealth managers have minimum net worth requirements, many do. If your net worth is below $250,000, you will likely benefit from the services of more specialized advisors. Above that threshold, the holistic services of wealth managers become more urgent.
It will also be useful to evaluate the diversity and complexity of your financial circumstances. If you have relatively few financial accounts and a limited number of asset types (e.g.: real estate, artwork, jewelry, stock, businesses, etc.), you won’t reap the full benefit of wealth managers’ services. But if you have many different accounts, own many different types of assets, and have trouble staying organized and confident that all the contents of your financial life are in ideal shape, it could be time to call a wealth manager.
Wealth managers will also liaise with your other agents — attorneys, accountants — to ensure that all the factors impacting your financial life are aligned. If you have many such agents and want to keep all of them on the same page, contributing positively to your financial circumstances, a wealth manager may well be an excellent resource.
What is it Like to Work with a Wealth Manager?
As with other types of financial advisors, wealth managers collaborate closely with their clients in a multi-step process aimed at developing a full understanding of their current financial circumstances and their future goals. The client-wealth manager relationship is often an intimate one, in which clients discuss aspects of their lives that they only share with their closest, most trusted allies. Only through this close, regularly updated collaboration can wealth managers create optimal plans for their clients.
At the outset of any new client relationship, wealth managers will have their clients fill out a financial health questionnaire. This questionnaire helps wealth managers ascertain the current size and composition of your estate, your regular cash income and outflow, your family dynamics, whether these factors are likely to change over time, and, if so, the different ways they may change. Whether or not you’re a homeowner, a parent, and/or an active investor (among other factors) will have a significant impact on how your wealth manager develops your specific plan.
The questionnaire will also assess your values, goals, and risk tolerance levels. If you’re early in your career, unlikely to need to access this money in the near term, and comfortable taking on some risk, a wealth manager will likely structure your investment portfolio more aggressively than if you’re near retirement and need cash soon. Likewise, if you’re about to put two children through college, your financial plan will look very different than if your children are all grown up and fully financially independent.
Based on the information they gather from your questionnaire, your wealth manager will develop a financial plan and then present it to you. The plan will include quantitative summaries of your current financial circumstances, as well as qualitative assessments of your goals and values. The plan will also simulate a variety of possible futures based on a variety of investment strategies, asset allocations, cash flow adjustments, and more.
It will behoove you to have a full comprehension of what your wealth manager is doing and why, asking any and all questions as they occur to you until you feel entirely comfortable with the plan. Once you and your wealth manager have mutually agreed on a plan, they will begin to plan and implement action steps. You will be included throughout the decision-making process, approving every significant change. Your wealth manager will never take significant steps without your consent.
You and your wealth manager will then schedule periodic meetings to discuss the results of your plan, as well as any changes to your personal, professional, and/or financial circumstances. Depending on the contents of these conversations, your wealth manager may recommend changes to your plan to better accommodate your developing life.
In addition to these periodic meetings, wealth managers are always on call. So, if your life suddenly changes — if you get a promotion, have another child, want to buy a house, or are curious about an investment opportunity — you can always call your wealth manager to get their perspective. Or, if you have questions related to any financial topic, your wealth manager will be more than happy to answer them.
What Should I Look for in a Wealth Manager?
There are a number of qualities to look for and question to ask when searching for the right wealth manager. Some of these include:
Compatibility. You’ll be spending a good deal of time with your wealth manager, sharing intimate details of your life. You’ll want to be sure that their communication style, personal values, areas of expertise, and more are compatible with your preferences.
Certifications. Oftentimes, wealth managers have achieved certain certifications that mean they have completed additional education, gathered significant experience, and been compliant with regulatory bodies in a certain financial area. Possible certifications include Certified Investment Management Analyst®, Certified Financial Planner™, and Certified Public Wealth Advisor®, but there are many, many more to look out for.
Fiduciary Status. When it comes to financial advising, there are two general standards by which different advisors abide: the fiduciary standard, and the suitability standard. The fiduciary standard means that the advisor is a fiduciary, and that they are acting 100% in your best interests, 100% of the time. Fiduciaries never stand to make commissions by selling products or services. On the other hand, non-fiduciaries act according to the suitability standard, which doesn’t prohibit making money from selling products or services. When selecting a wealth manager, there is no good reason to accept anything less than the fiduciary standard.
Client Base/Specialty Areas. Different wealth managers/wealth management firms serve different client bases, and as a result, have different areas of specialization. When interviewing different wealth managers, ask questions upfront about who they serve and why they serve them, and evaluate the extent to which you fit into these categories. Your specific circumstances, goals, and values will determine your level of fit with various wealth managers.
A Wealth of Knowledge
In the best of circumstances, wealth managers take much of the stress and intimidation out of financial planning for their clients. Their roles are as much about strong client communication and education as they are about developing and implementing effective financial plans. As with all activity related to your financial life, take your time, do your research, ask lots of questions, and listen carefully as you decide which wealth manager is right for you.