What Is Wealth Management and Is It Right for Me?

couple enjoying the perks of careful wealth management on a private boat

If you're fortunate enough to have significant assets, whether through your career or an inheritance, growing and preserving your wealth can be a daunting undertaking. High-net-worth individuals may want to hire a wealth management professional who specializes in growing assets, reducing tax burdens and loss exposure, and planning to pass wealth onto family.

These services aren't cheap, and aren't necessary for everyone, but they can help wealthy individuals make the most of their money and financial legacy.

How Does Wealth Management Work?

When looking for basic financial guidance, one of the best options is to hire a certified financial planner (CFP). These experts can offer advice on investing and estate planning, as well as more fundamental topics such as getting out of debt, creating a budget, planning for retirement and meeting savings goals. Once your financial situation becomes more complicated, you may need to turn to someone who specializes in wealth management.

Wealth management firms focus on growing and protecting your assets, both for you and your descendants. They may actively manage investments, but these professionals can also optimize tax, charitable giving and estate planning strategies. This expertise can reduce your tax burden and ensure your heirs get the greatest benefit from your financial legacy. Some wealth advisors also specialize in funding education, utilizing insurance, planning for business succession, and complex risk and legal issues.

What Qualifies Someone to Be a Wealth Manager?

The financial advice and management industry has a litany of certifications, which can make it confusing to figure out the right advisor for your situation. Many financial professionals start off by becoming either a chartered financial analyst or certified financial planner. If you want a professional who's gone on to pursue specific specialization in wealth management, look for:

  • Certified investment management analyst: This designation indicates that the professional has had at least three years in financial services and has completed an executive education program at a select business school. They've also had to pass an exam to show their knowledge with investments, managing portfolios and tailoring portfolios to clients' unique needs and risks.
  • Certified private wealth advisor: Those who obtain this certification have additional training in understanding and supporting the needs of individuals with net worths of at least $5 million. Before obtaining this designation, professionals must have at least five years of relevant financial services experience, complete an executive education program at a select business school, pass a rigorous exam and pass a background check. They're skilled in advanced wealth management, the wealth lifecycle, asset protection, tax planning, and family and estate planning.

It's important to know that not all financial professionals are a fiduciary—someone who solely acts in the best interest of their client. A fiduciary makes decisions based on their client's needs, rather than buying and selling investments based on earning commission, and they must disclose conflicts of interest.

Companies that are designated as registered investment advisors, and employ investment advisor representatives, are held to a fiduciary duty. So are CFPs. It's not a requirement for many other types of financial professionals, so before you hire someone, ask if they have a fiduciary duty to their clients.

What Income Do I Need to Hire a Wealth Manager?

Certified financial planners can help anyone, including those who have no savings and are mired in debt. Investment advisors and managers are generally accustomed to helping just about anyone who needs help investing guidance.

Wealth managers, on the other hand, focus on helping those with significant assets to preserve and grow them. Wealth management professionals often require clients to have a certain level of assets.

According to Northwestern Mutual, it usually doesn't make sense to work with a wealth manager until you have several hundred thousand dollars in investable assets. For example, investing firm Merrill generally requires an investment minimum of $250,000 to use their wealth management services.

Some financial institutions have different levels of wealth management services available depending on the level of assets. For example, US Bank has several tiers: They offer online wealth management at no minimum, comprehensive wealth planning for those with at least $100,000 in investments or $250,000 in balances, or private wealth planning for those with at least $3 million net worth.

How Much Does Wealth Management Cost?

Financial management comes in many forms, and the costs can vary too. For one-time financial planning, some professionals charge a flat project fee or hourly rate.

If someone actively manages your investments, you'll typically pay an ongoing monthly or annual fee that's a percentage of your assets under management. Firms that manage investment portfolios typically charge a management fee of 1% to 2%.

Wealth managers also often operate by charging a percentage, which may operate on a sliding scale, with high-asset accounts being charged a lower percentage. According to Northwestern Mutual, wealth management fees can range from a fraction of a percent to 3% or more depending on the advisor. Some wealth managers instead charge flat fees, or combine fee structures for different types of work.

Alternatives to Wealth Management Services

If your assets are such that wealth management isn't right for you, there are plenty of other services that can help you improve your financial standing before you make the leap.

These options include:

  • Portfolio management: These investment managers aren't focused on working exclusively with the wealthy, but with anyone who wants a professional to optimize and manage their investments.
  • Financial advisors: A CFP can help you make a game plan to improve finances and grow your investments until you get to a point where you've accumulated wealth.
  • Tax planner: An accountant or savvy tax planner can offer some of the same insight as a wealth manager if your focus is on reducing taxes or estate planning with taxes in mind.
  • Robo-advisors: These automated investment platforms manage your investment portfolio using algorithms. Based on your goals, robo-advisors manage your money automatically, and typically for a lower minimum investment and ongoing fee than personalized management services.
  • Online services: Some financial institutions that offer traditional wealth management now offer online services that are more accessible. For example, Merrill has an online, guided investment platform that only requires $1,000 minimum investment and at a low 0.45% annual fee. (Or, with a $20,000 minimum investment and an 0.85% annual fee, you can access an online advisor.)

The Bottom Line

If you've achieved a high net worth, hiring a wealth manager skilled in complex financial and legal issues could be worth the fees to help you make the most of your money, for you and your family. A wealth manager can be a trusted advisor in your corner who can help you stay protected from risky investments, ill-timed financial moves and other pitfalls that can lead to empty bank accounts.

As you manage your assets, it's also important to monitor your credit so you can stay prepared for taking on new credit and qualifying for the best terms on your loans and credit cards. After all, paying more than you should in interest won't help you grow your wealth.

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