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Wealth management is the top notch of the financial advice industry and serves as one-stop financial shopping for those in the mass affluent or high-net-worth category.
What Is Wealth Management?
In the simplest terms, wealth management is the most comprehensive form of financial advice and portfolio management. More than just investment advice, wealth management encompasses the majority of investing, financial, tax planning, legacy planning, charitable giving, stock option and estate planning decisions. Wealth management is geared toward high-net-worth individuals, although the exact amount of wealth appropriate for these services varies from a minimum of $250,000 to $1 million.
Wealth management firms vary in their approaches, services and scope. The companies range from large, multi-advisor firms with in-house lawyers, accountants and portfolio managers to smaller shops that outsource some of their services.
How Does Wealth Management Work?
Wealth management works to serve the individual financial and life planning needs of the client. With that goal in mind, the first step in the process is typically an interview with a wealth management advisor to discuss the client’s financial situation, goals, risk tolerance and any other related matters.
From this meeting, which also may include a comprehensive questionnaire, the wealth manager designs a personal plan for the client, including ways to meet the client’s goals and handle their financial concerns.
After the plan is created and discussed with the client, the advisor transfers the client’s assets to the firm and begins the investment process. The advisor will typically check in with the client on a mutually agreed upon schedule. At those meetings, investments and goals will be reviewed and adjusted as necessary.
Wealth Manager Qualifications and Credentials
Wealth management credentials matter. After all, you wouldn’t go to a general practitioner MD for surgery—the same is true for a wealth management advisor. The alphabet soup of credentials can be confusing, so to narrow it down, take a look at some of the most important and highly regarded professional designations for a wealth manager:
- Chartered Financial Analyst (CFA): This might be the most rigorous credential and requires a degree in finance, accounting, economics or business and four years of work experience before passing three separate comprehensive exams.
- Certified Financial Planner (CFP): This designation requires a combination of a bachelors degree plus financial planning coursework, passing a rigorous exam and 6,000 hours of professional experience related to financial planning.
- Chartered Wealth Manager (CWM): Issued by the Global Academy of Finance and Management, the CWM requires a combination of professional education, a related bachelors and/or advanced degree, three years of work experience and completion of an exam.
Ultimately, though, the most important credential might be whether a potential candidate is a fiduciary. A fiduciary means that the wealth manager must put their clients’ interest first, above those of their own or their employers. Fortunately, wealth managers who work for Registered Investment Advisors (RIAs) must be fiduciaries and registered with the Securities and Exchange Commission (SEC). In addition, certain credentials, like the CFP, require those who bear it to act as fiduciaries.
Wealth Management Fees
Fees for wealth management can be confusing, and excessive charges eat up returns. Unscrupulous wealth managers might undermine clients with hidden charges or by recommending high-fee products.
To avoid unpredictable costs, look for a wealth management firm that wraps financial, estate, and investment management into one annual fee based on assets under management (AUM) or performance, recommends James E. Demmert, managing partner at Main Street Research.
Most wealth managers structure the fee schedule based upon AUM, with a sliding scale as the portfolio grows. An advisor might charge 1.25% for the first $500,000, lower the fee to 1.0% for the next $1.5 million and charge 0.75% for accounts valued between $2 million and $5 million.
In today’s market it’s less common to find a financial advisor for higher-net-worth clients who works solely on commissions. But there may be additional commissions levied on specialty products like life insurance, annuities and private investments.
Additionally, nearly all mutual and exchange traded funds (ETFs) have underlying management fees that go directly to the fund provider. Those range from a low of 0.04% for a basic Vanguard stock market index fund like the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) to over 1% for an actively managed fund. It’s important to keep in mind how your advisory fees add up with these fund fees; if you aren’t careful, they could very easily top 2% of your portfolio’s value a year, which might hamstring your long-term investment returns.
How to Find a Wealth Manager
To find a wealth manager, start with recommendations from trusted attorneys, accountants and personal contacts with similar needs. Speak with references to further vet candidates. Stephan Dunbar III, managing partner at Business Strategies Group, a division of EquitableAdvisors, recommends choosing a wealth management advisor with an advanced degree and appropriate credentials. It goes without saying that the potential candidate should offer access to other professionals that you might need, such as attorneys and accountants.
Once you have a shortlist of candidates, make sure your choices are fiduciaries. Next, clarify the wealth management services that you are seeking, and then determine whether the candidates offer them. Chemistry and accessibility is also important. Consider whether you are comfortable with virtual contact or if you prefer in-person meetings.
Finally, understand the costs and compensation involved as well as make certain that there are no conflicts of interest. That means, if the advisor receives extra compensation for selling you a high-priced annuity and is also charging a percent of AUM fee, you might look elsewhere.
Should You Use a Wealth Manager?
Wondering whether a wealth manager is worth it? If you fit into a higher-net-worth category, typically above $250,000, $500,000 or $1 million, you might consider using a wealth manager, depending upon your facility with financial management and the complexity of your financial situation.
Amy Braun-Bostich, private wealth advisor at Braun-Bostich and Associates in Canonsburg, Pennsylvania, suggests that those seeking help with stock options, net unrealized appreciation, concentrated wealth and business owners would benefit from hiring a wealth manager. Older individuals looking for guidance with legacy planning, charitable giving and financial management might consider wealth management services as well.