Wealth management: Definition, Types, Benefits & Common strategies

The management of one’s finances is a very important aspect of life that makes up a high level of priority for all families. Some families are able to manage their own finances; however, managing wealth can often be difficult for individuals as they may not be educated or familiar with money-saving and investment strategies. When a family isn’t able to properly manage their own finances, especially those with a high net worth and no time to manage their wealth, the assistance of a financial professional may be necessary to properly secure the financial health, stability, and security of a family.

In such a common case, wealth management may be the answer to that problem. Wealth management is a specialized financial and investment advisory service that goes beyond conventional financial services in order to cater to the requirements of wealthier and affluent clients. By employing a consultative and holistic approach, wealth managers are able to gather relevant financial information about an individual’s or family’s financial goals and circumstances in order to create a personalized strategy and plan that utilizes an array of financial products, resources, and services that the wealth management firm has to offer. These firms offer a wide range of financial services that address the intricate needs of the client, including investment advice, estate planning, accounting, retirement planning, and tax services. The fee structures for comprehensive wealth management services may vary, but typically, fees are determined based on the client’s assets under management (AUM).

What sets wealth management apart from other financial advising services is that it is more than just investment advice. Wealth management encompasses all parts of an individual’s or family’s financial life. Instead of integrating various existing standard strategies, products, and services into the complex and intricate financial circumstances of the individual or family, wealth managers take a more personalized approach to financial planning as they create unique and specialized financial plans and strategies for their clients that relate directly to the circumstances they are facing. Wealth managers coordinate the services needed by utilizing resources and tools available at the wealth management firm. Firms often have legal, accounting, financial planning, tax, and estate planning professionals that are specialized and authorities in their financial disciplines. These financial professionals can combine forces with their extensive knowledge to create strategies and plans that best suit and fit their clients.

Wealth managers typically work as part of a small-scale or a larger wealth management firm. Depending on the scale of the firm, wealth managers may operate under different titles, often taking various roles, such as a financial consultant or financial advisor at smaller firms. Depending on the firm, an individual or family may receive financial services from a single designated wealth manager contact or have access to multiple members of the wealth management team.

Just as the size of each firm may differ, wealth management firms also operate and charge for their services in several ways. When looking for a wealth manager, it is vital to understand how they are paid and what credentials, certifications, or designations they have. Some wealth managers work as fee-only advisors and charge an annual, hourly, or flat fee. Other wealth managers work on a commission basis and are paid through the investments that they sell.

Lastly, fee-based wealth managers earn a combination of an initial fee and supplementary commissions on the investment products that they sell. A standard fee that a wealth manager may charge is typically around 1% of assets under management (AUM); however, in the case of larger or more specialized firms, wealth managers could take a higher fee, especially for clients with smaller account balances. Individuals with larger account balances can often pay substantially lower fees due to the larger AUM for the firm.

When working with a wealth management firm, it is typically recommended to work with a fee-only fiduciary or manager. This is because fee-only wealth managers are only being paid directly from the AUM fee and not from any commissions they make on financial products or services they sell. These financial products or services may not be in the best interest of certain clients with particular financial circumstances and situations. Avoiding such an arrangement where a wealth manager or fiduciary advisor is providing a product or service that does not fit the financial needs or goals of the client is best. Fiduciaries, such as wealth managers, are required to fulfill their fiduciary duty and put the needs of their clients above their own.

Before siding with a wealth manager, one should check their credentials and experience in the industry to see if they are able to manage their finances properly. Individuals can check the credentials of a financial professional to see which one best suits the family’s financial needs, goals, circumstances, and financial situation. The top three professional wealth manager credentials to look out for are the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Personal Financial Specialist (PFS). Many online sites exist for verification of professional certification to see if a wealth manager is in good standing with the financial organization or has had disciplinary actions or complaints filed against them. The Financial Industry Regulatory Authority (FINRA) has a tool that explains these professional designations and the finance professionals and specialties that hold each one. 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.

In order to properly manage one’s finances, wealth management firms are a perfect solution for high net-worth individuals and families who are unaware of financial regulations, uneducated in complex financial strategies, or lack the time to figure out the nuances of their finances for themselves. Whether a family wants to utilize the services of a private banking institution or an independent wealth management firm, individuals and families with substantial assets can benefit from the personalized fiduciary advice and customized holistic investment solutions. By employing these specific financial strategies, wealth managers work hard and strive to optimize the overall returns, mitigate risks, and secure the financial well-being of their clients.