Wealth Management

Updated June 11, 2021

What is Wealth Management?

Wealth management is an investment advisory service for high-net-worth individuals. 

Wealth management services are offered because individuals with a high net worth often have complicated financial situations. With that, many seek out professional wealth management services to help manage their investments, taxes, business transactions, and more. 

Instead of a broad service, wealth management often provides individual wealth management solutions. The specialized approach allows a level of customization that could not be otherwise obtained. 

Wealth Management vs. Portfolio Management

It can be tempting to confuse wealth management with portfolio management. But these are two very different concepts. 

Wealth management covers a wide array of financial situations. An individual may seek out wealth management services in pursuit of a holistic approach to their financial planning strategy as a whole. 

On the other hand, portfolio management focuses only on the client's investment portfolio rather than their entire financial life. 

Portfolio management services may focus on adjusting your asset allocation to optimize returns. But unlike wealth management, it may not take other factors such as tax planning, estate planning, insurance, charitable contributions, and more. 

Example of Wealth Management

Let's consider an example of an individual with a considerable net worth. This individual has ownership interests in two businesses and $5 million in invested assets. They are looking to set up a trust for their child and they want to ensure that their retirement needs are taken care of. 

After managing their wealth independently for years, this individual decides to hire the help of a wealth management service. Typically, this involves a team of professionals with different specializations. These experts can craft a plan that is designed to optimize the client's wealth and mobilize the assets to reach their client's goals. 

In this case, an accountant may help with their business interests, an estate attorney may provide expertise to set up a trust in a tax-efficient way, and a financial advisor may make sure the invested assets are properly diversified and invested according to the client's financial plan. With the help of a wealth management service, this individual can ensure they meet their financial goals through an efficient plan. 

Wealth Management Fees

When you enlist the help of a wealth management service, the fees can be relatively steep. 

You can expect to pay between 0.25% to 1% for wealth management services with a net worth of over $1 million dollars. Of course, the exact cost will vary based on your unique circumstances. But keep these numbers in mind to ensure you aren't overpaying for wealth management services. 

Are Wealth Management Fees Tax Deductible?

Although it was allowed in the past, wealth management fees are no longer tax-deductible. The IRS published this update to the rules in January 2021. However, qualified retirement accounts (such as IRAs) may pay their own fees without any tax implications. Fees taken directly from a tax-deferred account provides tax savings in a way.

How to Choose a Wealth Management Firm

Choosing a wealth management firm is a major decision. The choice you make will likely impact your financial future for many years to come. With that, it is important to take your time and do your due diligence on any potential wealth management firm you are seriously considering. 

As you start the search, look for wealth management firms that are providing services for similar clients. You'll want to ensure that the firm you choose is comfortable working with similar goals in mind. Don't move forward with any firm that doesn't feel aligned with your financial interests. 

Once you've narrowed down the options, it is time to do some research on their background. You can do this relatively easily through a FINRA broker check. With the help of this free and easy-to-use tool, you can ensure that the individuals at the firm are respected professionals in their field. If not, you should consider looking elsewhere. 

Finally, you should consider the pricing details as a part of your decision-making process. You don't want to spend more than you have to. Make sure you know how the advisor or firm is compensated, as this is often not clear. Are they paid a commission for selling products or funds, or are all of their advisory fees straightforward as in a fee-only model? Know what you will pay and be sure to read the fine print.

However, it is a good idea to work with a firm you feel comfortable with, even if that means spending a little bit extra. 

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All of our content is verified for accuracy by Mark Herman, CFP and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Wealth Management.

How do you get into Wealth Management?

In order to work in wealth management, you'll likely need to start with a college degree. The most reputable designations in the industry are  Certified Financial Planner, a Chartered Financial Analyst, and Certified Public Accountant. All require at least an undergraduate degree, a certain amount of experience, and of course passing an exam or series of exams. 

It is important to note that nearly anyone can call themselves a financial planner, even with no credentials other than perhaps passing an applicable FINRA exam. However, to truly serve as an advisor you will need to build your work experience in the industry, which typically takes several years to gain the confidence and competence to begin advising complicated clients. In addition, it may take even longer to build up your client base as well if you are on your own.

Is Wealth Management Private Banking?

Wealth management and private banking could be easily confused. However, private banking occurs when a financial institution extends specialized financial services to a high-net-worth individual. Typically, private banking requires an individual to have a large amount of cash available. 

Wealth management goes beyond offering banking solutions and services to a client. Instead, wealth management provides a comprehensive approach to efficient money management designed to achieve the client's goals. 

Mark Herman has been helping friends with financial questions since serving as an Army helicopter pilot. Since then, he’s gained valuable experience in the corporate world before moving on to become a Certified Financial Planner™.

If you have a question about Wealth Management, then please ask Mark.

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