In today’s world, the complexities of finances are undeniable. Between taxes, investments, and the psychological aspects of managing money, many people are left feeling overwhelmed.
Navigating all of that on our own is difficult. It requires a combination of good daily habits, mixed in with making some very large decisions along the way. The right choices can bring us to the life we envision, while the wrong ones may take us in the opposite direction.
So what exactly is wealth management? And do you need it?
What is Wealth Management?
Wealth management is the comprehensive approach to financial decision-making. It is the combination of strategies and decisions designed to:
- Reduce the chances of costly mistakes
- Increase the odds of maximizing each financial opportunity
Regardless of your unique vision for your life, prudent wealth management can act as a guide to help you make that vision a reality.
The Components of Wealth Management
Wealth management covers a broad spectrum of services, all with the goal of securing an individual’s financial future. These are the key components:
1. Financial Planning
Financial planning is the backbone of Wealth Management. It helps to answer key questions related to financial health such as:
- Am I on track to reach retirement?
- How much should I be saving now?
- How much can I afford to spend in retirement?
- When should I take Social Security?
- What unforeseen expenses should I prepare for?
Financial Planning brings clarity to these questions. This results in a roadmap that adjusts with you as your needs evolve.
2. Investment Management
Investment management attempts to align your resources with your personal objectives, risk tolerance, and time horizon. This multifaceted process includes:
- Asset Management / Portfolio Management – Wealth managers provide ongoing research, oversight, and adjustments to portfolios with the goal of balancing growth with preservation.
- Portfolio Diversification – By spreading investments across different categories such as asset classes, sectors, and geographies, wealth managers aim to craft portfolios that can weather market storms and stand the test of time.
- Risk Management Strategies – Investing always involves risk, and managing that risk is paramount to attaining long-term financial goals. Each of us have a unique risk tolerance. Part of a Wealth Manager’s job is to determine what your risk tolerance is, so they can align your investment strategy with your comfort level.
- A Disciplined System – Disciplined Investment Management offers a systemized approach that removes impulsive decisions and aims to keep every dollar working toward your larger vision. This approach removes impulsive and reactive decisions and puts an emphasis on consistency and prudence which helps people get the most out of their hard-earned money.
3. Tax Planning
Tax planning is the process of planning ahead for future tax liabilities with a focus on implementing strategies with the aim of maximizing wealth retention. Here’s how it works:
- Tax Assessment – A tax assessment is the process of evaluating your current tax position and creating a roadmap to improving that position. This process can begin to illuminate tax-efficient opportunities.
- Tax-Efficient Investing – Not all investments or investment accounts are treated equally from a tax standpoint. Strategies for tax-efficient investing can include: Asset location, Direct Indexing, Tax-loss harvesting, and tax diversification. (Accomplished by balancing the use of tax-free, tax-deferred, and taxable accounts.)
- Long-Term Strategy –Some future tax liabilities may not yet be on your radar but may be waiting for you down the road. Planning in advance can help create tax-saving opportunities in numerous areas including: coordinating retirement income streams, Social Security, Roth Conversions, and even charitable giving.
4. Estate Planning
Estate Planning focuses on passing on wealth according to your wishes, both during your life and after.
Key strategies include:
- Efficient Wealth Transfer – Proper estate planning helps to accomplish the goals of preserving wealth and leaving a lasting legacy for your loved ones and/or your favorite causes. It also has the potential to minimize taxes and legal complications.
- Estate Documents – Most people are aware of wills, but other estate documents sometimes go overlooked. Estate documents such as Power of attorney, and healthcare directives can be just as important for keeping your wishes intact and providing for your heirs.
When structured properly, the correct combination of estate planning can remove stress from loved ones during an already difficult time. While a Wealth Manager doesn’t draft legal documents, they can identify potential gaps and refer you to trusted legal professionals that suit your unique situation.
The Benefits of Working with a Wealth Manager
The benefits of working with a Wealth Manager on the surface are financial, but the ripple effects can go much deeper.
- A Holistic Financial Strategy – A holistic financial strategy aims to address everything in your financial life A to Z, so you can spend less time worrying about it all. This approach starts with the Wealth Manager gaining a deep understanding of you as a person and what is important to you. Then they can align financial decisions according to your personal values and goals.
- Proactive management – Rather than ‘Set it and forget it’, a Wealth Manager can adapt your financial plan as your life evolves.
- Personalized advice – Every individual’s journey is unique, which is why personalized advice is in high demand. A comprehensive Wealth Manager doesn’t just offer generic strategies—they tailor their approach based on your individual needs, preferences, and aspirations.
- Access to advanced technology and tools – In an increasingly tech-driven world, Wealth Managers leverage advanced tools—like AI-driven portfolio management and financial planning software—to optimize your plan.
Beyond the benefits of professional tools and expertise is a hidden benefit that sometimes goes overlooked, and it may just be the most important one: Emotional and Psychological guidance.
Every individual has emotional reactions that can impact their financial decisions. A skilled Wealth Manager serves as a trusted guide who helps you make objective, thoughtful choices and empowers you to focus on what matters most while your financial resources support your journey.
Choosing the Right Wealth Manager
Ultimately, Wealth Management is a partnership built on trust. You will only be confident in a Wealth Manager if you feel that they are competent to do the job, and trustworthy to put your interests ahead of their own.
Qualities to Look for in a Wealth Manager:
- Experience
- Competence
- They are held to the ‘Fiduciary Standard’ 100% of the time
- Credentials (CFP is the highest standard)
- Infrastructure of the organization – (Do they seem like a well-oiled machine?)
- Quality team members/staff – (What impression do they give you on the phone, via email, or in-person communication?)
- Strong online reviews
- A communication style that works for you
- A sound investment philosophy and approach
- They offer ongoing support for you on your financial journey
Beyond the qualities to look for, we encourage you to find someone who takes an approach that resonates with you, makes you feel comfortable, takes the time to understand your values and your vision, and respects your aspirations for your life.
What to Expect in an Initial Consultation:
An initial consultation should be a two-way street of open communication. They should ask you questions, and you should ask them questions.
You can ask about their status as a fiduciary, what main variables they will help you with, what topics are most important for you to focus on, and their opinion on any financial obstacles you’re facing. They might ask about your current finances, what goals you have, and any unique circumstances that you are dealing with.
This assessment helps them better understand you and how they might be able to help you. And it helps you understand if they may be a good fit for you or not.
Before entering that conversation, write some questions down that you have for them, and during the call, jot down their answers. This process will help you judge their competence and will give you a good starting point on how comfortable and confident they make you feel.
Fee Structures:
Wealth Managers can be compensated a few different ways. The arrangement is usually either based on fees, based on commissions, or some combination of the two.
A ‘fee-only’ advisor only charges fees either at a flat rate, or as a percentage of ‘Assets Under Management’ (or AUM). The more common of those two is the ‘AUM model’ which is where the investment accounts are in your name, but the Advisor has ‘advisory privileges’ on the account/s. They can use their discretion on how to manage those assets, or they can manage them based on parameters that you set together with them.
A commission-based advisor on the other hand generally makes their money on the sale of financial products or investments. They receive commissions when they convince you to put your assets in a certain investment fund, insurance product, or annuity.
Then there are advisors who may have 1 foot in each camp. They may charge fees on an AUM basis but also have the ability to sell insurance or annuities as well. If this type of advisor does not sell you any specific investment product, then they are operating in a ‘fee-only’ manner even if technically, they are called ‘fee-based’.
Common Misconceptions About Wealth Management
There are two main misconceptions about wealth management.
- Misconception #1 – Wealth Management is only for the Ultra-Wealthy
- Misconception #2 – Wealth Management is too expensive / not worth it
Misconception #1:
To address Misconception #1, Wealth Management is not exclusively for the ultra-wealthy.
While some firms have minimum asset requirements, there are advisors for nearly every asset level. If you have less than $100k in investable assets, it will be harder to find a firm that will work with you, but you can still seek out advisors who operate under a different business model. Those types of firms may instead charge to provide a comprehensive financial plan. These arrangements are sometimes called ‘advice-only, ‘subscription-based’, ‘flat-rate’, or ‘one-time financial plan’.
Misconception #2:
As for Misconception #2, while wealth management does cost money, it should be seen as an investment. The first questions to consider are:
‘Will a wealth manager provide more value than I can achieve on my own?’
‘Does the benefit outweigh the cost?’
‘How expensive is it to not have a wealth manager on your side?’
Return on investment (ROI) can vary quite a bit from person to person. For instance, some individuals who don’t work with a Wealth Manager may make a mistake that winds up costing them tens of thousands of dollars. For that individual, the ROI of working with a Wealth Manager can be incredibly high. For someone else who is very competent and capable of managing their own wealth, the ROI may not necessarily be as high.
Wealth Management isn’t necessarily for everyone. Some prefer a do-it-yourself approach or may lack trust in the industry. If you’re unsure, we’ve got a good process below that can help you determine if Wealth Management is right for you.
Is Wealth Management Right for You?
We recommend starting with an evaluation of your mentality around your finances before you assess your actual financial situation. Start by answering these questions to determine your level of clarity and confidence on each of these topics.
- What are my most important goals in life that I am still working towards?
- Am I on track to reach my goals?
- Am I sure that my current diversification mix is right for me?
- Have my own investment returns been close to market level returns?
- How often do I stress about money?
- Do I enjoy managing my own money?
- Am I taking full advantage of every opportunity that is available to me?
- How much time do I spend researching, thinking, worrying about, and managing my own money?
- Would I benefit from outsourcing some of the complexity of my finances so I can focus more on what matters most to me?
If there is ambiguity or stress around these questions or your answers to them, then speaking with a professional Wealth Management firm may be worth exploring.
The Goals of Wealth Management
The goals of Wealth Management are:
- To bring people financial security and freedom, which ideally leads to a higher quality of life and more peace of mind
- To empower people to spend more of their time with family and community
- To free up more energy to focus on passions or purpose in life
If these goals resonate with you, then Wealth Management may be the route to the destination your seeking.
