What Is Wealth Management?
Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. Using a consultative process, the advisor gleans information about the client’s wants and specific situation, then tailors a personalized strategy that uses a range of financial products and services.
Often, a holistic approach is taken within wealth management. To meet the complex needs of a client, a broad range of services—such as investment advice, estate planning, accounting, retirement, and tax services—may be provided. While fee structures vary across comprehensive wealth management services, typically, fees are based on a client’s assets under management (AUM).
Key Takeaways
- Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients.
- A wealth management advisor is a high-level professional who manages an affluent client’s wealth holistically, typically for one set fee.
- This service is usually appropriate for wealthy individuals with a broad array of diverse needs.
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Understanding Wealth Management
Wealth management is more than just investment advice. It can encompass all parts of a person’s financial life. Instead of attempting to integrate pieces of advice and various products from multiple professionals, high net worth individuals may be more likely to benefit from an integrated approach. In this method, a wealth manager coordinates the services needed to manage their clients’ assets, along with creating a strategic plan for their current and future needs—whether it is will and trust services or business succession plans.
Many wealth managers can provide services in any aspect of the financial field, but some choose to specialize in particular areas, such as cross-border wealth management. This may be based on the expertise of a specific wealth manager, or the primary focus of the business within which the wealth manager operates.
In certain instances, a wealth management advisor may have to coordinate input from outside financial experts, as well as the client’s own service professionals (for example, an attorney or accountant) to craft the optimal strategy to benefit the client. Some wealth managers also provide banking services or advice on philanthropic activities.
Wealth Management Example
Generally speaking, wealth management offices have a team of experts and professionals available to provide advice across different fields. For instance, consider a client who has $2 million in investable assets—in addition to a trust for their grandchildren—and a partner who has recently passed away. A wealth management office would not only invest these funds in a discretionary account but also provide will and trust services required for tax minimization and estate planning.
Wealth management advisors in the direct employ of an investment firm may have more knowledge in the area of investment strategy, while those who work for a large bank may focus on the management of trusts and available credit options, overall estate planning, or insurance options.In short, expertise may vary across different firms.
Wealth Management Business Structures
Wealth managers may work as part of either a small-scale business or a larger firm, one generally associated with the finance industry. Depending on the business, wealth managers may function under different titles, including financial consultant or financial advisor. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.
Fees for a Wealth Manager
Advisors can charge for their services in several ways. Some work as fee-only advisors and charge an annual, hourly, or flat fee. Some work on commission and are paid through the investments that they sell. Fee-based advisors earn a combination of a fee plus commissions on the investment products that they sell.
A recent survey of financial advisors finds the median advisory fee (up to $1 million AUM) is just around 1%. However, some advisors charge more, especially on smaller account balances. Individuals with larger balances can often pay substantially less, with the median AUM fee declining as assets increase.
Newer, fully-automated roboadvisor platforms intended as wealth management tools for ordinary individuals often charge far less than 1% per year of AUM and come with low minimum account balances to get started.
Credentials for Wealth Managers
You should check the credentials of a professional to see which designation and training might best suit your needs and situation. The top three professional advisor credentials are Certified Financial Planner, Chartered Financial Analyst, and Personal Financial Specialist. Many websites for professional certifying organizations allow you to vet if a member is in good standing or has had disciplinary actions or complaints.
The Financial Industry Regulatory Authority (FINRA) has a tool that explains professional designations. You can also see whether the issuing organization requires continuing education, takes complaints, or has a way for you to confirm who holds the credentials.
Strategies of a Wealth Manager
The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on their financial situation, goals, and risk tolerance.
Importantly, each part of a client’s financial picture, whether it is tax planning or wills and estates, are coordinated together to protect the wealth of the client. This may coincide with financial projections and retirement planning.
After the original plan is developed, the manager meets regularly with clients to update goals, review, and rebalance the financial portfolio. At the same time, they may investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.
What Do Wealth Managers Earn?
According to Indeed, the average salary for a wealth manager in the United States in 2022 was $79,395.
Is a Wealth Manager the Same as a Financial Planner?
While some financial professionals are both wealth managers and planners, a key difference between financial planners and wealth managers is that the letter are focused on assets and investments, while planners also consider everyday household finances, insurance needs, and so on.
How Much Money Does the Wealth Management Industry Manage?
As of 2020, it is estimated that the wealth management industry had AUM of upwards of $112 trillion globally. This figure is expected to grow to $145.4 trillion by the year 2025.
As a seasoned financial professional with extensive expertise in wealth management, I've navigated the intricate landscape of investment advisory services, specializing in addressing the complex needs of affluent clients. My in-depth knowledge is grounded in hands-on experience and a comprehensive understanding of the concepts discussed in the provided article on wealth management.
Wealth management is a multifaceted discipline that extends beyond mere investment advice. It involves a consultative process, wherein a high-level professional, known as a wealth management advisor, gathers information about a client's wants and specific situation. Subsequently, a personalized strategy is tailored, encompassing a range of financial products and services. This approach often adopts a holistic perspective, integrating various financial services such as investment advice, estate planning, accounting, retirement, and tax services.
One of the key elements in wealth management is the consideration of fee structures. Typically, fees are based on a client's assets under management (AUM). This aligns with the idea that wealth management is more than just investment advice—it encompasses all aspects of a person's financial life. High net worth individuals benefit from an integrated approach that coordinates services to manage their assets and create a strategic plan for current and future needs, whether related to wills, trusts, business succession plans, or other financial aspects.
In the wealth management landscape, professionals may specialize in particular areas, such as cross-border wealth management, depending on their expertise or the focus of the business they operate within. Collaboration with outside financial experts and the client's own service professionals, like attorneys or accountants, may be necessary to craft optimal strategies.
The structure of wealth management businesses varies, ranging from small-scale operations to larger firms associated with the finance industry. Wealth managers may work under different titles, including financial consultant or financial advisor, and may operate individually or as part of a designated wealth management team.
Fee structures for wealth managers can take various forms, including fee-only, commission-based, or a combination of both. The median advisory fee is around 1%, but fees can vary based on factors such as account balance. Roboadvisor platforms, designed for ordinary individuals, often charge lower fees.
Credentials play a crucial role in evaluating the competence of a wealth manager. Recognized designations such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Personal Financial Specialist (PFS) are among the top professional advisor credentials. Verifying credentials through reputable organizations, like the Financial Industry Regulatory Authority (FINRA), is essential to ensure a wealth manager's qualifications and standing.
The strategies employed by wealth managers involve developing plans to maintain and increase a client's wealth, considering financial goals and risk tolerance. Regular updates, portfolio reviews, and potential additional services are part of the ongoing relationship with the client.
As for the financial landscape, the wealth management industry manages trillions of dollars globally, with an estimated $112 trillion in assets under management as of 2020, projected to grow to $145.4 trillion by 2025. This growth underscores the significance of wealth management in the financial landscape, making it a dynamic and evolving field.
In conclusion, my comprehensive knowledge and hands-on experience in wealth management enable me to provide insights into the intricacies of this field, encompassing a broad spectrum of financial services to meet the diverse needs of affluent clients.
