Wealth management is a high-level professional service that combines financial and investment advice, accounting and tax services, retirement planning, and legal or estate planning for one set fee. Clients work with a single wealth manager who coordinates input from financial experts and can include coordinating advice from the client’s own attorney, accountants and insurance agent. Some wealth managers also provide banking services or advice on philanthropic activities.
Wealth management is more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to integrate pieces of advice and various products from a series of professionals, high net worth individuals benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future needs.
While the use of a wealth manager is based on the theory that he or she can provide services in any aspect of the financial field, some choose to specialize in particular areas. This may be based on the expertise of the wealth manager in question, or the primary focus of the business within which the wealth manager operates.
Wealth Management Example
For example, those in the direct employ of a firm known for investments may have more knowledge in the area of market strategy, while those working in the employ of a large bank may focus on areas such as the management of trusts and available credit options, overall estate planning or insurance options. The position is considered consultative in nature, as the primary focus is providing needed guidance to those using the wealth management service.
Wealth Management Business Structures
Wealth managers may work as part of a small-scale business or as part of 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 adviser. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.
Strategies of a Wealth Manager
The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on that individual’s financial situation, goals and comfort level with risk. After the original plan is developed, the manager meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.
Private Wealth Management
Private wealth management is delivered to high-net-worth investors. Generally this includes advice on the use of various estate planning vehicles, business-succession or stock-option planning, and the occasional use of hedging derivatives for large blocks of stock.
Traditionally, the wealthiest retail clients of investment firms demanded a greater level of service, product offering and sales personnel than that received by average clients. With an increase in the number of affluent investors in recent years, there has been an increasing demand for sophisticated financial solutions and expertise throughout the world.
The CFA Institute curriculum on private-wealth management indicates that two primary factors distinguish the issues facing individual investors from those facing institutions:
Time horizons differ. Individuals face a finite life as compared to the theoretically/potentially infinite life of institutions. This fact requires strategies for transferring assets at the end of an individual’s life. These transfers are subject to laws and regulations that vary by locality and therefore the strategies available to address this situation vary. This is commonly known as accumulation and decumulation.
Individuals are more likely to face a variety of taxes on investment returns that vary by locality. Portfolio investment techniques that provide individuals with after tax returns that meet their objectives must address such taxes.
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