What Is Wealth Management and How Does it Work?

High-net-worth individuals can have complex financial needs. They sometimes turn to wealth managers to help map out a comprehensive plan with the goal of preserving capital and ultimately passing it on to heirs. To qualify for this type of advice, an individual needs to already be wealthy, with more available investable assets and higher minimum net worth than a regular financial advisor would require.

What is wealth management?

Wealth management is a service designed to help high-net worth individuals understand how they can use and preserve their assets. There are no absolute requirements for minimum net worth or assets under management to engage the services of a wealth manager. However, it’s fairly typical for a wealth manager to oversee s $2 million to $5 million for an individual client. 

Wealth management companies typically offer services including: Investment management, savings management, tax planning, estate planning, and legal advice. Instead of a client having to hire individual specialists for each and every service, the wealth management firm covers them all. 

What does a wealth manager do? 

A wealth management advisor first communicates with high-net-worth clients to determine their wealth management goals and priorities. These financial objectives can be to maximize wealth, minimize liabilities, control financial investments, and prepare for what happens to the client’s assets after death.

The manager then assembles the appropriate mix of experts and acts as a coordinator directing a team that can include lawyers, accountants, financial planners, and insurance advisors. They offer plans and advice from a unified, integrated view that considers the clients’ total financial needs and goals. 

How do wealth management engagements work?

Wealth managers can work individually, or they can work for a bank or private wealth management firm.

Wealth managers will typically charge a flat-fee or receive compensation based on a percentage of client assets under management. The percentage fee typically will be 1%, though it may be lower for higher net worth clients to gain the business, in expectation that having more assets under management will yield higher fees in the long run.

Investment strategies used by wealth managers

Because wealth managers deal with high value accounts, they have more flexibility in their investment strategies. If the client is a qualified accredited investor, the wealth manager can advise them to invest in hedge funds and private equity vehicles that might be too risky or prohibitive for lower-net-worth clients. They might pursue a value investing strategy or growth investing strategy, depending on the needs of the individual. 

Wealth managers are likely to consider the impact an investment strategy has on other areas of wealth, such as estate planning and taxes. 

Some wealth management strategies might include:

• Taking control of all investment categories and retirement accounts so they have a comprehensive view of a client’s finances. 
• Optimizing tax planning in coordination with other wealth planning strategies.
• Executing an estate plan so that the individual can pass wealth on to designated heirs. 
• Designing a succession plan for clients who own businesses. 

Wealth manager vs. financial advisor: Key differences

Wealth managers fall within the broader category of financial advisors or planners but focus on serving the wealthiest clients. They generally help clients plan to pass on assets to heirs and philanthropic charities. Meanwhile, a financial advisor specializes in investment growth, which is useful when a client is amassing wealth. 

Wealth managers require higher account minimums than most financial advisors. Wealth managers act as financial advisors and financial planners, but they do much more: tax planning, estate planning, handling insurance, accounting, and providing legal advice.

How to choose a wealth manager: Considerations

Questions you might ask a potential wealth manager overlap to a large degree with questions you might ask a financial advisor: 

• Are you a fit for my expectations?

  Will they meet your expectations for communication style and frequency of contact? Does the wealth manager have a fiduciary duty to put the client’s needs ahead of the wealth manager’s profit motive? Do they follow a certain approach to asset allocation, and how willing are they to adjust to client needs? ‍

• What about credentials and experience?

  Wealth managers are likely to hold bachelors and grad school degrees in finance, accounting, or law. Professional credentials such as CFP (Certified Financial Planner), CPA (Certified Public Accountant), CFA (Chartered Financial Analyst) are common certifications they possess.  

• ‍Do you have a track record of success at high levels of investment?  High-net-worth clients usually have a complex, interlocking mix of assets. Wealth managers need to have a history of delivering results for those kinds of top tier accounts. 
• ‍What services does the firm offer? How comprehensive are they? Will some services be farmed out to other specialists? If so, who are they? 
• ‍Do you work independently or for a larger firm? An individual Certified Financial Planning (CFP) professional will act as the coordinator working alongside the client’s existing special advisors like tax professionals and investment managers. A larger firm, sometimes called a “family office” takes a “soup to nuts” comprehensive, consolidated approach. All wealth management services are housed under one roof. 
• ‍What’s your fee structure? Typically, wealth managers take a single fee, calculated as a percentage of assets under management. A 1% fee is common, but percentages can and do vary. 
• ‍What are your minimums? Wealth managers usually won’t take on clients below a certain threshold. Knowing the minimum assets under management level is a handy filter to use. The usual target audience for wealth management is affluent individuals with annual income of $350,000 per year or more. A common minimum account starts at about $250,000, though it may be as high as $10 million.

The bottom line

A wealth management advisor caters to high-net-worth individuals who have already amassed significant wealth and who need both comprehensive and specialized advice and planning. Wealth management companies coordinate all these services and more under one roof. 

Individuals below the typical minimum account threshold of $250,000 might be better suited hiring a financial planner or financial advisor who specializes in growing wealth. A wealth manager provides services that go beyond investment management into areas like tax planning, retirement planning, accounting and legal services, and estate planning.