What is wealth management? There are two answers to that question.
The first is for everyone out there who starts a lot of sentences with the words "actually" or "technically." Technically, wealth management is pretty much anything that deals with your money. It could mean opening up a lemonade stand on a sunny afternoon as long as you paid for those lemons yourself.
For everyone who doesn't ruin parties just by showing up, wealth management means comprehensive guidance about your money. Wealth management is a discipline that combines advice on investments, taxes, retirement and much more. The central theme is this: A wealth manager helps you to achieve your goals with your money.
Let's talk about that.
What Is Wealth Management and Goal-Oriented Advising?
Seeing a financial specialist has many upsides. If you visit a dedicated tax accountant, they will know taxes inside and out. The same goes for visiting an investment specialist or a retirement adviser. The downside, however, is that it opens the door to Maslow's Hammer. When the tool you have is a hammer, every problem begins to look like a nail.
When you have 30 years of experience dealing with the IRS, every client starts to look like they need tax help.
Wealth management, when properly done, starts from the other perspective. A wealth manager will ask what the client wants to achieve and assembles an asset strategy based on those goals.
This is called goal-oriented advising. It starts with a conversation about outcomes. Are you looking to save for retirement? Do you want to buy a house, send a child to college, have your first $1 million by age 40, build an estate for your children, a combination of these or something different altogether? From there a wealth manager begins to put together advice on how you should manage your money to achieve these goals. This plan will be cross-disciplinary, encompassing everything from taxes to investments and more.
Basically, a wealth manager asks "what do you want to do with your money," then helps you figure out how to do it.
What Does a Wealth Manager Do?
A wealth manager is closer to a consultant than anything else. While they may have expertise in some particular financial field, their chief role is to create a strategy and coordinate the efforts of other financial advisers. For example, a wealth manager may identify a specific approach to your taxes, and then bring in a tax consultant to help implement it. Or he may create an investment strategy, then hire a banker to actually manage that portfolio.
This is not a hard and fast rule. Some wealth managers do take a hands-on role in your finances. However, in general, the practical duties of wealth management are the big picture. On a day-to-day basis, they figure out how to help you meet your financial goals, then oversee your complete financial position to make sure that plan stays on track.
Most wealth managers will develop this plan based on a particular field of specialty. Again, there are no hard and fast rules. Some will provide general asset management services, but the majority of wealth managers (at least the particularly good ones) will focus on helping clients who want to achieve a particular outcome. For example, a wealth manager may specialize in retirement planning, portfolio growth, estate development, and philanthropy or some other field.
Is Wealth Management Just for the Wealthy?
This is the trickier question.
The perspective of wealth management is that it's a domain for the wealthy, or at least the exceptionally affluent. This is reinforced over and over again by many people who write on the subject. Forbes, for example, specifically defines wealth management "from the affluent individual's perspective." They are not alone. Even the name "wealth management" implies… well, wealth.
It's all misleading.
Wealth management has nothing to do with being rich. Certainly, you need the wherewithal to pay for the financial services these professionals provide. Yet this isn't as exclusive as many people believe. Financial advisers can come at a range of prices, and high-quality advice is well within reach for most Americans.
More importantly, sound financial advice is important to most Americans. Whatever your situation in life, you'd like to accomplish something. Whether it's saving up for a house, sending your kids to college or just feeling a little bit better about what's in the bank, financial goals are a shared experience. We all want to cross a finish line.
And while a layperson can make that happen, a professional can almost certainly do it better.
We all pay taxes. We all need a retirement account. We'd all like to have some money invested and watch it grow. We'd all like to figure out a better plan for our spending and how to know when our future goals simply require more income. These are all pieces of your financial life that should work together.
A wealth manager makes those connections.
Does that mean that all wealth managers are for everybody? Certainly not. Many are still geared toward wealthy clients and they establish that by requiring a minimum portfolio size. A firm that refuses to oversee assets of less than $1 million isn't looking for middle-income customers.
Others are not though. Others are retail advisers, ready to help you understand how your tax planning and investment strategy should relate and how to shape those around your goal of paying off your student loans and buying a small house.
That is wealth management at its best, and it's for everybody.