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.
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.
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What Is Wealth Management?
Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. It involves a consultative process where the advisor gathers information about the client's wants and specific situation. Based on this information, the advisor tailors a personalized strategy that utilizes a range of financial products and services.
Wealth management takes a holistic approach to meet the complex needs of clients. It encompasses a broad range of services, including investment advice, estate planning, accounting, retirement planning, and tax services. The fee structure for comprehensive wealth management services typically relies on a client's assets under management (AUM).
Understanding Wealth Management
Wealth management goes beyond investment advice and covers all aspects of a person's financial life. Instead of integrating advice and products from multiple professionals, high net worth individuals often benefit from an integrated approach. A wealth manager coordinates the services needed to manage their clients' assets and creates a strategic plan for their current and future needs, such as will and trust services or business succession plans.
While many wealth managers can provide services in various financial fields, some choose to specialize in specific areas, such as cross-border wealth management. This specialization may be based on the expertise of the wealth manager or the primary focus of the business they operate within. In some cases, a wealth management advisor may need to coordinate input from outside financial experts and the client's own service professionals, such as attorneys or accountants, to develop the optimal strategy for the client.
Wealth Management Example
Wealth management offices typically have teams of experts and professionals who provide advice across different fields. For example, suppose a client has $2 million in investable assets, a trust for their grandchildren, and a recently deceased partner. In that case, a wealth management office would not only invest the funds in a discretionary account but also provide will and trust services required for tax minimization and estate planning.
The expertise of wealth managers may vary across different firms. Those employed by investment firms may have more knowledge in investment strategy, while those working for large banks may focus on trust management, estate planning, or insurance options.
Wealth Management Business Structures
Wealth managers can work as part of small-scale businesses or larger firms associated with the finance industry. Depending on the business, wealth managers may function under different titles, such as financial consultants or financial advisors. Clients may receive services from a single designated wealth manager or have access to members of a specified wealth management team.
Fees for a Wealth Manager
Wealth managers can charge for their services in several ways. Some work as fee-only advisors and charge an annual, hourly, or flat fee. Others work on commission and are paid through the investments they sell. Fee-based advisors earn a combination of a fee and commissions on the investment products they sell. The fees charged by wealth managers can vary, with the median advisory fee for assets under management (AUM) being around 1%.
There are also newer, fully-automated roboadvisor platforms that offer wealth management tools for ordinary individuals. These platforms often charge less than 1% per year of AUM and have low minimum account balances to get started.
Credentials for Wealth Managers
When choosing a wealth manager, it's important to check their credentials to determine which designation and training best suit your needs and situation. The top three professional advisor credentials are Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Personal Financial Specialist (PFS). Many professional certifying organizations have websites where you can verify if a member is in good standing or has had disciplinary actions or complaints.
Strategies of a Wealth Manager
A wealth manager starts by developing a plan that maintains and increases a client's wealth based on their financial situation, goals, and risk tolerance. They coordinate different aspects of a client's financial picture, such as tax planning and estate planning, to protect their wealth. This may involve financial projections and retirement planning. The manager regularly meets with clients to update goals, review and rebalance the financial portfolio, and assess if additional services are needed. The ultimate goal is to remain in the client's service throughout their lifetime.
Additional Information
- The average salary for a wealth manager in the United States in 2022 was $79,395.
- While some financial professionals are both wealth managers and financial planners, a key difference is that wealth managers focus on assets and investments, while financial planners consider everyday household finances and insurance needs, among other things.
- As of 2020, the wealth management industry managed assets under management (AUM) of over $112 trillion globally, and this figure is expected to grow to $145.4 trillion by 2025.
I hope this information provides you with a clear understanding of wealth management. If you have any further questions, feel free to ask!