What is Wealth Management? Everything You Need to Know
Wealth management is one of the best financial advisory services a wealthy person can choose to manage their financial assets. Although the service is typically accessible for highly wealthy clients, those who have a significant sum of financial assets may also find it useful.
Wealth managers across the country help manage their client’s finances and possessions that contribute to their overall net worth, like real estate, stocks, art investments, and luxury vehicles. A wealth management firm can offer a variety of services including retirement planning, tax services, and estate planning. Even if you don’t consider yourself wealthy now, there’s a chance your wealth may grow as you age, and a wealth manager can make organizing your money easier.
What Does Wealth Management Mean?
The basic definition of wealth management is an advisory service that provides financial planning and management for wealthy figures. These could be individuals or families that want to manage their wealth together. Investing minimums to work with a wealth manager vary, but could be $500,000 to $5 million or more. Depending on the firm or individual wealth manager, there are many wealth management services they may offer.
Potential services include:
- Financial planning: Setting budgets and finance goals.
- Estate planning: Family arrangements in preparation of death, like living trusts and wills.
- Tax planning: Estimating taxes for income and investments and discovering tax deductions.
- Investment management: Developing investment strategies and overseeing an investment portfolio, like stocks and bonds or exchange-traded funds (ETFs).
A wealth management company may offer all of those types of services by having advisors that specialize in specific areas, or they may work with certified professionals on a contractor basis to do those tasks for them. An example of this would be a firm hiring an outside accountant to take a closer look at their clients’ taxes, or working with an to better handle legal documents.
Do You Need Wealth Management?
If you have at least six figures worth of assets under management (AUM), you may benefit from wealth management. More well-known investment firms such as UBS, Fidelity, and Morgan Stanley may only accept clients that own at least $1 million worth of assets. For those with a very high net worth, private management firms can be the better option, as they deal with ultra wealthy clients and can cater their services more directly.
What Are Wealth Managers?
A wealth manager is a specific type of financial advisor that either works for a wealth management firm or offers their own services independently.
What Do Wealth Managers Do?
Managing money and investments can be difficult, even if you have less than $100,000 worth of assets. If you were finding it difficult to manage assets with less money, it can get increasingly more burdensome as your wealth grows. That’s why wealth managers and wealth management consultants are essential for many people because they guide clients in how to invest, help organize their finances, and plan for their retirement.
These advisors are extremely beneficial to those who may have suddenly received a significant increase in salary or investment capital and aren’t used to having so much wealth in their control.
What Is a Robo-Advisor and How Does It Work?
For those who prefer less human interaction, some wealth management companies have robo-advisors that offer automated services — keeping your wealth management on autopilot.
These autonomous advisors use algorithms and your personal preferences to implement strategies for your portfolio and other investment decisions. Robo-advisors are a fully online service, so there is minimal interaction with an actual financial advisor.
Some people prefer robo-advisors because there is less human interaction, while others may not feel comfortable with putting their wealth in the hands of a robot.
How To Choose a Wealth Manager
When choosing a wealth manager, consider these factors:
- Research the different services offered and the manager’s background.
- Verify the credentials of the firm and/or managers.
- Review how the manager is paid.
- Compare services from various management firms.
- Focus on the value of the service rather than the price.
Researching and verifying the credentials and services of a wealth manager is crucial, and minimizes the chances of you falling victim to fraudulent or misleading services. You can verify an advisor’s credentials through the Securities and Exchange Commission (SEC). There are multiple ways these managers get paid for their services, with some charging a flat fee, and others charging commission.
Some clients prefer their manager to be paid by commission because it gives more of a feeling that both parties are dedicated to the managed assets together. Others may prefer a flat rate for simplicity’s sake, but it all depends on what you prefer. Regardless of how they are paid, it’s important to not prioritize how much you’ll pay, but rather if their service is worth what you’re going to pay.
Are Wealth Managers Worth Your Money?
Wealth managers can be extremely worthwhile if you’re having difficulty organizing and planning your money, investments, and other assets. If the manager only charges a commission, they may use a percentage of the capital gains as a commission fee; therefore, you won’t have to worry about paying directly out-of-pocket.
Flat fees on the other hand can range between $7,500 to $55,000 annually, while hourly fees typically cost $120 to $300, so you’ll need to consider if those are affordable for your personable budget. But if you’re good with money and confident in managing your own assets, a wealth manager may be more of an accessory than a necessity.
Wealth Managers vs. Financial Advisors: What’s the Difference?
All wealth managers are financial advisors, but not all financial advisors are wealth managers. There are many types of financial advisors that offer a variety of financial services, where wealth managers only deal with high-end wealthy clients. Here are some industries that a financial advisor may specialize in:
- Real estate
- Stocks, bonds, and index funds
- College and future education planning
Wealth management firms may be able to offer services related to all of those sectors, but in many cases they will have their own personal advisors that specialize in only one of those industries. Advisors under one company can offer services together to offer a complete wealth management package.
Wealth Management vs. Asset Management
Asset management focuses on investments such as stocks, bonds, ETFs, mutual funds, and other investments. Wealth managers offer a more broad service and focus on their client’s entire wealth rather than just maximizing profits for assets.
The Best Wealth Management Strategies
Whether you decide to have a wealth manager consultant or not, there are certain tips to keep in mind to help keep your wealth stable:
- Create a budget for your spending.
- Have a savings account or some type of emergency funds.
- Diversify your investment portfolio.
- Get life insurance in case of sudden life-threatening events.
- Discover ways to fully utilize tax benefits.
While a wealth manager may be able to manage all of your wealth for you, it’s often best to work as a team and practice good habits yourself. Consultants can recommend creating budgets, putting excess money to the side for savings, and other useful tips. However, if you don’t practice these methods in your own everyday spending, you’ll put your wealth at risk of decreasing — especially in times of unexpected events such as an economic recession. Implementing your own wealth management strategies can make you and your manager’s planning easier.
Wealth Management Alternatives
If you’re looking for more specific types of wealth management services, there are professionals such as stock brokers, real estate agents, asset managers, and accountants that can offer specialized services.
If you have most of your wealth in stocks, stock brokers specialize in executing trades and other stock transactions for their clients. For those who just want help managing their real estate properties, a real estate agent can handle activities involved with those investments. And if you just simply want help with taxes, an accountant is well-prepared to assist you.
Wealth Management FAQs
Many people may be unfamiliar with the concept of wealth management, so we gathered some of the most common questions associated with the topic and answered them for you.
How Much Are Wealth Manager Fees?
Wealth management fees vary from each company, where they may either be a flat annual fee, an hourly fee, or an annual commission on the amount of assets being managed. Commission fees can range from 0.59 percent to 1.18 percent annually, but robo-advising can be cheaper. Flat annual fees may cost $7,500 to $55,000, while hourly fees typically cost $120 to $300.
How Do Wealth Managers Make Money?
Wealth managers make money from the rates and commission fees they charge clients. If it’s a wealth management firm, they will split those earnings amongst the employees and eligible contractors, depending on their own standards.
What if I Don’t Have Enough Money for Wealth Management?
If you don’t have enough money for a wealth manager, you can practice good wealth management habits and utilize the resources Mint has to offer. Whether it’s budgeting, calculating your net worth, or estimating your retirement savings, Mint has various tools at your disposal — such as the Cost of Living Calculator — to help you organize and build your wealth.
Manage Your Wealth With Mint
Along with the calculators that Mint offers, we also have the Mint app, your all-in-one personal finance hub that allows you to monitor finances, track your credit score, and much more. Become your own wealth manager by managing all of your assets, accounts, bills, and credit cards in one place. By utilizing strategies and tools like the Mint app, you can build wealth and increase your net worth more effectively.