What Is Wealth Management?

Wealth management helps high-net-worth clients maximize their assets and plan for their long-term financial future. It can include estate planning, accounting, investment advice and more. Interested individuals should look into a firm’s fees, services, credentials and reputation before committing.

Real estate. Business ventures. Stocks and bonds. Valuable possessions. Many individuals accumulate a high net worth over a lifetime — but what happens to all that wealth? Wealth management helps these affluent individuals ensure their financial future and plan for their families’ futures as well. In this story, we cover more on wealth management, its various strategies and what to consider when choosing a wealth manager to oversee your finances.

What Is Wealth Management?

Wealth management is a service that helps clients organize, track and manage their finances. It typically targets affluent clients with a variety of assets, such as real estate, stocks, bonds and mutual funds.?

The wealth manager works with the client to determine their needs and desires, create a financial strategy and execute that strategy in a way that maximizes the client’s assets. Wealth management can also include creating wills, trusts, business succession plans and other estate planning needs.?

What Does Wealth Management Do?

Wealth management covers a range of services depending on a client’s needs. A good wealth manager will always create a personalized plan. However, they usually offer these services:

• Estate planning
• Retirement planning
• Accounting and tax preparation
• Investment advice
• Insurance advice
• Education planning
• Charitable giving planning

Wealth Management Strategies?

Wealth managers use a variety of strategies to help their clients maximize their portfolios, including:

• Asset allocation is the process of balancing a client’s portfolio among the three major asset classes — equities, cash and equivalents and fixed income — considering short- and long-term goals and risk tolerance.
• Diversification is the process of spreading a client’s assets within the different asset classes. For example, within the equities asset class, a wealth manager may invest in a variety of stocks.?
• Rebalancing is the process of adjusting investments to maintain the target asset allocation and diversification as the market changes over time.?
• Tax-loss harvesting is a strategy that reduces a client’s tax bill by selling some investments at a loss to offset their profits. They only pay taxes on the net profit and can then reinvest their money to recoup their losses.

Wealth Management vs. Financial Planning

Many people confuse wealth managers and financial planners, also called financial advisors, but there are a few differences:?

• Wealth managers typically only work with affluent clients and have broad experience in a variety of investing, planning and risk management strategies. They may also charge higher fees.?
• Financial planners work with many different income brackets and focus on lifestyle planning, like budgeting and saving for retirement.

Wealth Management vs. Portfolio Management

Wealth management and portfolio management are both services that affluent clients use to manage their investments. So, what does wealth management do that portfolio management does not??

• Portfolio managers focus only on the client’s securities, that is, tradable financial assets like stocks and bonds. Their goal is to maximize returns and minimize risk.
• Wealth managers take a more holistic view of the client’s assets, which can include land, gold or even artwork. Their goal is to responsibly manage assets over the long term.

How Much Money Do You Need for Wealth Management?

Each wealth management firm sets its own minimum amounts, so there is no industry-wide rule regarding the amount of money a client needs. But because wealth management provides a higher level of service than financial planning or portfolio management, clients typically need at least $250,000 in assets. Some firms may even require several million dollars to get started.?

Wealth Management Fees

While clients can shop around to find a lower minimum requirement, they also need to think about wealth management fees. Fees usually work in one of two ways:

• Percentage fees are based on a percentage of the client’s total assets under management (AUM). These fees decrease as the AUM increases.?
• A client with $500,000 AUM may pay 1.5% annually, or $7,500. A client with $1 million AUM may pay only 1% at the same firm.
• Fixed fees are a flat rate based on a range of AUM. They can cost a client more, less or the same amount as percentage fees depending on their AUM.
• A client with $500,000 to $1 million AUM may pay a flat rate of $7,500. In our example, this is a better deal for the client with $1 million, but the same for the client with $500,000.

Wealth management firms may also charge hourly or commission-based fees. It is important to determine not only which fee structure has the most benefits, but also what it includes.?

How to Choose a Wealth Manager

While wealth management fees are important, clients must also consider other factors, including:

• Service offerings: Ensure that the wealth manager has the expertise the client needs in specific areas, like estate planning or investing. Compare the services and expertise of different firms.
• Background and credentials: Research the firm’s background and ensure they are registered with the Securities and Exchange Commission (SEC).
• Client history and reputation: Speak to the firm’s current and past clients about their satisfaction. Most wealth management firms can provide a list of references.?
• Investment strategies: Ensure that the wealth manager’s investment strategies line up with the client’s own philosophy, risk tolerance and goals.

Final Thoughts: Who Needs Wealth Management?

Wealth management is for clients with a high net worth, typically $250,000 or more — and even those with that amount may find that the fees add up. Those with less money may want to consider these wealth management alternatives:?

• Financial planners help individuals and families work toward goals like paying for college or saving for retirement.
• Certified public accountants keep records and prepare taxes for individuals, families and businesses.
• Chartered life underwriters provide advice about life insurance and estate planning.
• Asset managers help individuals and businesses manage their financial investments.

Clients who don’t have a high net worth can also turn to software and “robo-advisors,” which use data and algorithms to make investments. Robo-advisors are the lowest-cost option.?

Top Takeaways

What Is Wealth Management?

• Wealth management is a service that helps high-net-worth clients maximize their investments and plan for their financial future.
• Wealth managers most commonly offer estate planning, retirement planning, accounting and tax preparation and investment advice, among other services.
• Wealth management clients typically need at least $250,000 AUM to get started.?
• Potential clients should look into firms’ fee structures, which include percentage and fixed-rate fees, as well as compare their service offerings, reputation and credentials.
• Individuals without a high net worth can look into wealth management alternatives like financial planners, certified public accountants or asset managers.

(Reporting by NPD)