Before defining the amount of money needed to hire a wealth manager, it is helpful to highlight some differences between a wealth manager and other types of financial advisors including financial planners, brokers, and traditional financial advisors.  Financial planners, financial advisors, and wealth managers all provide financial advice to clients including investment advice, but frequently the lines defining the differences are blurry and indistinct.  How do you decipher who does what?

Wealth Manager Vs Financial Advisor

One significant distinction between a wealth manager and a traditional financial advisor is that wealth managers generally serve substantially higher net worth households (often called ultra-high net worth/UHNW).  Wealth manager advice delves deeply into estate taxes, income taxes, generational planning/trusts, and charitable planning in addition to the traditional investment planning.  UHNW clients generally require significantly more assistance in these complex areas versus the larger group of middle class (sometimes called “mass affluent”) and high net worth investors (HNW).  A simplistic definition of these groups is $10million of net worth or greater is considered UHNW.  HNW would be $5 – 10million of net worth, and mass affluent may be defined as $1million to $5million.  These definitions are clearly oversimplified and additional factors including future expected growth/savings, client age, business ownership, expected inheritance, and other factors will affect the planning an individual or family may require.

Many regular financial advisors will call themselves “wealth managers” or “wealth advisors”, but  a second key distinction is educational credentialling and expertise.  Most regular financial advisors do not have the expert qualifications and experience needed to address complex client needs.  True “wealth advisors” will have extensive credentials and experience including degrees and industry certifications like CPA, CFP, JD, CIMA, and others. 

How Much Does A Financial Advisor Cost?  How Much Does A Wealth Advisor Cost?

Financial Advisors and Wealth Advisors may be compensated in flat fees or a percentage of the asset value of the portfolio under management. A typical range for an annual percentage fee would be between 0.25% and 1.0% of invested assets.  The percentage charged is generally CHEAPER as the assets under management get LARGER.  Thus, Wealth Advisors, who generally manage larger client households, may actually charge a lower percentage fee than regular financial advisors working with smaller client households. 

Financial advisors may also be paid in commissions on the brokerage of the assets they buy for you. How much commission varies based upon the investment being purchased and this tends to shift more compensation to the beginning of a relationship (with less reasons for follow up service after the sale).  Wealth managers are less likely to use a commission based fee model, and significantly more likely to be fee based, or fee only.

What Are Other Differences Between A Wealth Manager And A Financial Advisor

Financial Advisors help people budget, save, and allocate assets.  Services often include lifestyle planning, college savings planning, and retirement planning.

A Financial Planner is a subset of financial advisors whose typical clientele is middle-class or upper-middle-class employees, and a written financial plan is one primary output of their work.

Wealth Managers are a subset of financial advisors who provide services to high-net-worth or ultra-high-net-worth individuals. Their services encompass risk management, capital gains planning, estate planning, alternative investment planning, philanthropic planning and other financial strategies pertinent to the wealthy.

Whereas a financial planner may just give advice, a wealth manager may actively manage client assets with a fiduciary responsibility back to the client.

Do I Need A Financial Advisor Or A Wealth Manager?

If you are a middle-class or upper-middle-class investor/family/employee, a financial planner is a logical solution. A true wealth manager is probably not required (and may cost you more).

If you are a high-net-worth (i.e. wealthy) individual/family/business owner, consider the specific services required in your situation.  When your needs include more complicated areas that require additional expertise, then a wealth manager will be a logical conclusion.  Be sure the wealth manager’s credentials and experience match up well with your needs.

Benefits Of Hiring A Financial Advisor

Financial advisors provide expert advice on money management, lifestyle planning, and retirement accumulation/distribution planning — spheres of knowledge that employees or business owners don’t necessarily acquire in school or on the job.

Financial advisors are educated and adhere to rigorous ethical standards. Many have fiduciary responsibility to you — an ethical obligation to put your wishes and best interests above your own.

You can tell your financial advisor your age, income, net worth, family status, desired retirement age, and financial status. The financial advisor uses this data to create a strategy to achieve those goals, as well as recommend assets to execute the strategy.

How Much Money Should You Have Before Hiring A Financial Advisor

Most financial planners accept clients with a minimum of $100,000 investable dollars to put under management. Some will accept $50,000 or lower, but $100,000 is a good benchmark. For people with fewer assets, a Roboadvisor based on a computer algorithm may suffice and provide basic investment advice.

Wealth managers have higher minimums. How high depends on the wealth manager, their experience, and the demand for their services. It could be $500,000, $1 million, or even more.  Wealth Managers with the highest demand frequently require $2mm -- $5mm minimums (or more) as their time is limited and top shelf service is demanded by their HNW and UHNW client households.  In addition to these higher minimums, top Wealth Managers may also limit the number of client households they serve.

Should I Use A Financial Advisor Or Do It Myself?

You can do much of what a financial advisor does with the help of inexpensive online tools. However, computer algorithms can’t account for all variables that an experienced financial advisor will consider. Nor can Google searches substitute for really “doing your homework” on an investment or an asset allocation before you implement it.

If you don’t have the time or the expertise to really understand what you are investing in and why -- in other words, the things financial advisors train for and practice every day — you are probably better off trusting the care and expertise of an experienced financial advisor. People outside of the finance world often report better returns after working with financial advisers vs. when they tried investing on their own, even after factoring in all fees associated with the financial advisor. 

Do I Need A Financial Advisor For My 401(k)?

Not only do you not need a financial advisor for your 401(k), you may have trouble getting one involved even if you wanted one. By law, employer 401(k)s can only be managed by financial advisors with fiduciary responsibility to their clients, and not every financial planner does.

Further, it can be hard for financial planners to legally take a commission from managing a client’s 401(k) funds. For this reason, employees are less likely to obtain advice and more infrequently change their 401(k) investment strategies (even if they would be better off by doing so). 

How Do I Know If I Need A Financial Advisor?

You know you need a financial advisor if:

• You don’t have the time or the expertise to manage your own assets.

• Subjects like retirement savings, college savings, or investing keep getting pushed further and further down your to-do list.

• You know you should invest, save, manage risk, and strategize for capital gains, but you don’t know where to start.

Do I Need A Financial Planner For Retirement?

You don’t need a financial planner to plan for your retirement, but their expertise can be invaluable. A good financial planner can look at your current situation and your retirement goals, and map out an actionable plan to achieve the best possible lifestyle for your retirement.

For many people, retirement is a personal and sensitive subject. Your financial planner can be a neutral party who tells it like it is and helps you set realistic goals.

Wealth Manager Salary

The average wealth manager’s salary in the US is currently just under $95,000. The lower 25th percentile earns approximately $50,000, while the upper 75th percentile earns around $100,000. Top-performing wealth managers earn in excess of $250,000 annually.

Wealth Manager Job Description

A wealth manager takes the assets of a high-net-worth or ultra-high-net-worth individual, family, or entity under his/her direct management. (S)he has the power to make investment decisions on behalf of the client, with a fiduciary responsibility to the client.

The wealth manager executes a strategy agreed upon with the client with respect to:

• Asset allocation.
• Risk management.
• Estate planning.
• Capital gains planning.

How Much Money Do I Need To Hire A Wealth Manager?

Wealth managers typically work with individuals, families, and entities who have a higher-than-average net worth. The barrier to entry will vary from one wealth manager to another. It could be as low as $250,000, or as high as $1 million and beyond.

How To Become A Wealth Manager

There is no one way to become a wealth manager — different firms have different requirements. A candidate will usually require at least a bachelor’s degree, plus relevant certifications like CFP (Certified Financial Planner) and/or CFW (Chartered Wealth Manager). Advanced certifications in business and accounting can’t hurt either.

Wealth management is the upper echelon of financial planning. Candidates must have excellent social skills, business savvy, and a global perspective to keep up with the fast-paced world of the wealthy.

What Does A Wealth Manager Do?

Wealth managers help wealthy and ultra-wealthy clients balance growth strategies with risk management and tax planning to build and preserve their wealth. This could involve:

• Keeping up with tax laws.
• Recommending insurance products.
• Identifying appropriate investment opportunities.
• Interacting with clients to keep their wealth management plan on track with their goals.

 

Thank you for reading so many nuanced thoughts about differences between a wealth manager and a financial advisor.  We hope the information proves useful.

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