Why Wealth Management
Say you owned a catboat or maybe a cabin cruiser, for paddling along on a sleepy lake. Now, perhaps you had caught enough fish and moved up to a hydrofoil, for zooming along the Moskva River – or, for that matter, the Seine, the Tiber, or the Adige (at high tide only, purtroppo). Your crew pay, docking fees and maintenance budget would surely also rise. Now, say you made some high-flying friends while European river-cruisin’ and upgraded to a used corvette – say, a Soviet-era patrol boat from the storied city of Odessa, on the Black Sea. It fell off the back of a Navy-surplus truck and was picked up by an enterprising metal-detector enthusiast, for delivery to you.
No?
All right, maybe you dig more of a civilian vibe and opt for a 100-foot-long catamaran with the catchy name of Fancy Feast. (Cat-amaran, get it?) Might your maritime complications – and we don’t mean the ones on fancy watches – grow? And if you didn’t need a twin-hulled accounting department to manage those expenses, you would surely need one once you decided to go for broke – yes, in every sense – and clear a quarter-mile of waterfront within view of your beach house for that aircraft carrier the Andorran Navy just took off their books.
It probably had something to do with Andorra being a landlocked country, but it was the deal of a lifetime for you: finally, a nice big deck for those pre-dawn jogs on the waves, a place to accommodate the entire Swedish Bikini Team toasting buns for your annual Fourth of July blowout, and sweetest of all – a cozy landing strip for your Cessna, Gulfstream or Embraer aircraft. To finance that carrier, though, you might need a line of credit from the Federal Reserve, carrying interest to infinity and beyond.
How to make it all happen without your maiden voyage turning into a loss at sea? This is the part where a private wealth manager glides up to your hulking gray beast on a good-looking frigate, whereupon you casually drape a pilot ladder over the portside gunwale.
What Might A Wealth Manager Do For You?
Wealth management is a general advisory service that harnesses offerings such as investment advice, estate and tax planning, accounting and banking to serve the many financial needs of high-net-worth clients. Not illogically, a wealth manager tends to be a polished pro specializing in high-touch, comprehensive services in exchange for a pre-agreed fee that is usually a fixed percentage of the assets under management.
Through contact judiciously spaced in time, the wealth manager gleans details on the client’s needs, coming up with a custom-fitting approach to preserving and extending wealth while managing taxes and philanthropy, if any.
A holistic approach is best, covering portfolio management, accounting, banking, business succession plans, retirement needs, will and trust services, charitable giving etc. – even having the occasional tough talk with air-headed heirs, if that’s what’s on the docket.
How Does Wealth Management Work?
An integrated picture of a client’s finances is drawn up and the various pieces coordinated. The goal? To protect and grow wealth within the framework of their current situation, plans for the future and risk profile. The typical wealth manager will invest heavily in client relationships, aiming to provide services to the client and their family for the rest of their lives.
Wealth managers work at small shops or as a part of larger financial firms, and consequently may have different titles, such as financial consultant, financial adviser or private wealth manager. There is likely a whole team working for the account behind the scenes; depending on the complexity of a given client’s needs, they may require the expertise of a number of specialists. For this very reason, some wealth managers focus on certain narrow subdomains, such as cross-border wealth management, where they may have a natural advantage on account of dual citizenship, experience living abroad, fluency in multiple languages and degrees in law or finance from foreign universities.
Wealth Managers’ Qualifications and Credentials
Most wealth managers on this green Earth – also any you might meet on boats or planes – will have a college degree in finance, accounting or economics. Some will boast advanced degrees in the above disciplines, as well as law. The truly judicious become Certified Financial Planners (CFPs), while the altogether astute go for the Personal Financial Specialist (PFS), a specialty credential for CPAs who work in wealth management. Some who are more technically minded choose the ambitious Chartered Financial Analyst (CFA) designation. These three are the top professional credentials for wealth managers, with the Certified Private Wealth Advisor and Certified Private Wealth Analyst (CPWA) certifications marking seasoned mid-career professionals. As the people executing the buying and selling of stocks, bonds and other securities, wealth managers will also hold a Series 7 license from the Financial Industry Regulatory Authority (FINRA), the financial industry regulator.
Part of shopping around is reading up on a specific advisor’s credentials to ascertain which designation and training best suits your goals and style. The websites of the professional certifying bodies allow visitors to check whether a member is in good standing, has had complaints filed, and has completed the required continuing-education hours.
Wealth Management Fees
Most wealth management advisors have a compensation structure rooted in a fee plus commission on the investments they sell. The fee is usually a fixed percent of the assets under management, with the percent falling as the volume of assets grows beyond the $2 million mark. The most comprehensive survey of advisers to date has found the median advisory fee (up to $1 million AUM) to be ~1%. Still, many advisors charge more than this, particularly in the case of more modest account balances.
How to Find a Wealth Manager
There are as many private wealth managers out there as boats or planes. The big takeaway is – take your time and shop around. Some clients like the warm, fuzzy feeling of working with an advisor who is part of a large financial institution. One advantage of such firms is the ability to leverage large amounts of capital by pooling the resources of many affluent clients; whether they pass the efficiencies thus gleaned along to the client is another matter, and certainly something to inquire about when screening candidates.
Another criterion to have in mind while shopping is the degree of attention to your account an advisor or team can offer. It is for this reason that some HNWs like the cozy feel of a small shop. In the end, it’s about fit and chemistry, and most people will entrust their fortune to the team that offers the most personalized service while wearing the least manufactured smile.
Should You Use a Wealth Manager?
If you are a self-made man or woman who has gained entry into the ranks of HNW individuals, the money demigods will learn of your fortune and will come for you in the form of cold calls and glossy brochures sent via airmail to your boat-building shop, your aircraft parts manufacturing facility, your airship-leasing franchise HQ. Pitches will be made, promises lofted, “anchors aweigh!” hollered with rabid enthusiasm while quaffing fine champagne. You have the ability to tell whether that dockside shadow at twilight is a rat treating mooring line as rampart or the welcome shape of a fisherman’s yawl gaining the harbor; you’ll know intuitively what questions to ask, and if they don’t come to you, simply see the advice above.
If you’re an heir who has inherited not just the wealth but also a modicum of the ambition and gumption that fed its creation, you will want an advisor who can help you with all of your grand plans while turning a blind eye to the inevitable occasional grandstanding. After all, you have a fortune to grow, an estate to protect, a future to effect and the whole world to make better, one charitable donation at a time.
And if for the moment, you are still the only person in that machine shop, burning the midnight oil to deliver a perfect product to a client, a general financial advisor may be for you. Take time and work up to that private wealth manager; a CFP will do nicely in the meantime. These days, in open skies or water, planes and boats are steered by autopilot; you can do something similar and hire a robo advisor. They’re automated, low-effort investment options with managed portfolios of exchange-traded funds that offer solid returns in exchange for minimal fees.