Is Wealth Management Only for the Wealthy? – upd April 2015

Wealth management has become a set of buzzwords that financial advisors use when they sell investment and insurance products. It certainly sounds good. Consequently, you have to be very cautious when you select advisors who say they provide wealth management services. 75% of the time, the words are part of finely honed sales pitches that are designed to gain control of your assets.

What is Real Wealth Management? 

Real wealth management is a sophisticated process that is designed to help you accumulate and preserve assets during your lifetime and distribute your assets to the right parties after you and your spouse are gone. Real wealth management also helps you maximize performance and minimize taxes, investment risk, and expenses.

Do Asset Amounts Really Matter?

The amount of assets you own does not matter. Your ability and willingness to pay fees to multiple providers matter a lot. However, the industry assumes total expenses are highly correlated to asset amounts. For example, a $10,000 fee is 1% if you own $1,000,000. It is 0.5% if you own $2,000,000. Fees as a percent of assets go down, but that may not be the driving force. A person with $1,000,000 needs the same wealth management services as the person with $2,000,000 so the real issue is your willingness to pay fees.

What are the Wealth Management Services?

There are six wealth management services: Planning, investment advice, money management, insurance, tax, and legal. Most investors are already using varying combinations of these services. For example, they have financial planners, money managers, insurance specialists, CPAs, and attorneys who draft their wills and other estate-related documents. Rarely are these services a seamless package of coordinated advice and services.

What is a Financial Quarterback? 

The financial quarterback is an increasingly popular role that is usually provided by the financial advisor. This professional is responsible for making sure the various service providers deliver coordinated advice that is free of duplication and conflicting advice. For example, the financial planner and the CPA provide contradictory tax advice. If you do not have a quarterback, you have to take on this role yourself, which is usually a bad idea.

Can You Reduce Your Expenses?

If you contract for all of these services separately you will receive uncoordinated advice and you will pay layers of higher fees. You can save yourself a lot of time and fees if the professionals communicate with each other. For example, the planner sends your estate plan to the attorney who is drafting or updating your will. The attorney has the information he needs to produce documents and you don’t have to spend expensive hours in meetings providing the information.

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One response to “Is Wealth Management Only for the Wealthy? – upd April 2015”

  1. Good overview! Above some very large number– some firms target $10MM+, some $25MM+, others even higher– you begin to enter the realm of the Ultra High Net Worth, and the game really does begin to change. Outstanding legal, tax and investment advice are table stakes, but 85% of the reasons that wealth fails to pass down beyond the 3rd generation has nothing to do with those things. It becomes more about what they want to accomplish with their wealth, and what kind of impact they can have where it matters most to them.

    Although some of the stories are now very dated, Frank Rich’s 2008 book “Richistan” is a good peek into the unique characteristics of the ultra-wealthy and how much they differ from “mere millionaires”.

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