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We’ve all heard the rule of thumb, If you have to ask how much it is, you can’t afford it. Some of us have encountered its corollary, if you’re not sure whether you need wealth management, you probably don’t.
You see, truly affluent people are faced with the fact that wealth is a resource to be managed actively—lest complacency, inflation and family strife eat away at it—and so they employ wealth managers to protect their fortunes.
Still, those aspiring to affluence might be considering wealth management. Here’s why that might be a smart move.
Wealth Management: What Is It?
Wealth management is widely understood to be a suite of services that aims to manage, multiply and protect wealth. This suite includes retirement preparation, insurance, estate planning, investment management and tax abatement strategies. Certain firms also offer accounting and banking services to clients.
If you’re a candidate for wealth management, you likely already have a relationship with a financial planner and a lawyer, but if the job of managing your wealth has grown beyond these specialists’ capabilities, you may find yourself searching for a person or team to more fully serve your needs.
Three Reasons Why You Might Need a Wealth Manager
One straightforward way to outgrow your advisor is to join the rarefied ranks of high-net-worth individuals (HNWI): those with over $750,000 in investable financial assets or a net worth in excess of $1.5 million, according to the Securities and Exchange Commission (SEC). In other words, you can look at wealth management as financial planning-plus for HNWIs. The plus includes accounting and tax, trust and banking services, along with little extras, like that cool San Pellegrino or pinot grigio when you visit the firm.
Another reason to take up with a wealth manager is if you are trying to leave a financial legacy to last past your lifetime. Legacy planning aims to protect your assets, normally in a structured, tax-advantaged vehicle such as a trust, to help ensure a thriving future for the people you love and causes you ardently support.
Complex Financial Needs
If you’re entering your third or fourth decade in the workforce, you have likely graduated past the accumulation stage of your financial life and now need advice on planning for income for eventual retirement security. For most people, longer life expectancies, the rising cost of medical care (including securing care for elderly parents) and concerns about the solvency of Social Security have shaken some people’s confidence in their ability to maintain their current wealth-management-worthy standard of living while retired.
As their financial needs increase, clients can reach for specialized knowledge that goes beyond investment, such as tax and estate planning (bring on the CPAs!) and assets/liabilities advice (bring on more CPAs). In search of maximizing their portfolio power, clients can shoot for outsize returns, at which point they often need advice on esoteric investments (hedge funds, private equity, collateralized debt, multi-currency emerging markets and real estate deals, et al). In either case, a dedicated wealth manager should offer the products and tools you need.
How to Choose a Wealth Manager
When choosing a wealth management team, steer clear of firms that practice the hard sell with promises of handily multiplying your assets. After all, what you are really looking for is a protective edge—against inflation, risk (industry, market, sovereign, currency, et al.) and ill-considered decisions made on the basis of insufficient information.
Most people of true wealth are less interested in betting the farm to gain a far-off pasture and more invested in preserving what they have. For that reason, screen all candidates thoroughly. Check their credentials, reviews and any disciplinary history using financial governing body FINRA’s BrokerCheck to make sure everything’s above board.
While education and credentials are prerequisites for sussing out a good wealth manager, you will also want to find someone who can interact with your family with ease since they’ll be in touch with them frequently as you plan out your financial life. A good wealth manager will guide your family through a personalized process that works for the specific goals it has, whether that’s philanthropy or building generational wealth.
Finally, there is scant need to attach too much significance to the particular names wealth managers call themselves. They may have different titles, such as financial consultant, financial adviser or private wealth manager, and they may work at small companies or for larger financial firms.
Rather than working with just one person, depending on the complexity of your needs, you may end up with a team of experts managing your wealth. Seek out the wealth manager who fits your needs best, regardless of what they call themselves or where they set up shop.
Wealth Management Options for Those Who Aren’t Rich Yet
Now, let’s say all that HNWI stuff sounds swell, but you’re not yet there. You may be a high earner, just not rich yet—what the financial community calls a HENRY—or you may be working your way to high-earner status.
The first order of business would be to hire a general financial advisor—say, a certified financial planner (CFP). The CFP certification is widely viewed as the gold standard in the financial planning community, and signals that someone has completed a rigorous exam covering the ins and outs of financial planning.
You may also opt for a robo-advisor that will create an automated investment plan for you. These robos, which come at a fraction of the cost of a CFP, may offer human-powered financial advice as well. For those who prefer to spend the lion’s share of their time tripling down on their strengths—concentrating on the work they do, as opposed to researching the financial markets and then making bets on stocks—going with a robo advisor may be the winning ticket.
David Lavie is a writer and editor with two decades’ experience in marketing communications, equity research and publishing. He is a founding partner in Quartet Communications.