Are Wealth Managers Worth the Cost?
Whether or not someone is worth it can be subjective. It is a bit like deciding whether the designer bag your friend bought on two maxed-out credit cards is worth the price. They might be thrilled with the purchase, even if it takes months to pay off. You, on the other hand, might think that is a terrible idea and would not dream of doing the same. The point is that worth is personal.
When it comes to wealth managers, you need to weigh two things:
- What they cost, and
- What they actually do for you
You need to compare what you are paying to what you are gaining. If the numbers add up, it might be money well spent. If not, then you may not find a lot of worth in hiring a wealth manager.
Anyhow, this article can help you do a cost analysis and understand the role of a wealth manager, so you can answer for yourself – are wealth management fees worth it?
Table of Contents
How much money do you need for private wealth management?
Private wealth management is often seen as something only the ultra-wealthy can access, and this may be true. Most traditional wealth management firms require you to have a certain amount of assets before they take you on board. They may also mandate having a minimum portfolio of around $1 million.
If you meet this threshold, the cost usually depends on how much money you have under management. Most firms charge a percentage of your Assets Under Management (AUM), with an average annual rate of about 1%. So, if you have $1 million invested, you might pay around $10,000 annually in fees. For $2 million, this could be $20,000, and so on.
Ultra-high net worth wealth management fees can be high. But as your portfolio grows, many firms may lower the percentage they charge. So, you would pay less in a way, but the overall costs may still be high.
Some wealth management firms also offer fee-only services. In this case, instead of charging a percentage, they may charge a flat annual retainer or bill you by the hour. Flat fees typically range from $5,000 to $10,000 per year. However, it could sometimes be more, depending on how complex your financial situation is, the services you hire the professional for, and how much help you would finally need.
If you have less than $1 million, you still have options. Many firms cater to clients with lower minimums, and there are also some wealth advisors who provide scaled-down wealth management services for a fraction of the cost. Ultimately, the amount of money you need for private wealth management depends on your goals and how much guidance you want in managing your money.
Wealth manager fees can also vary widely. Larger firms may charge you more because they have big teams. The manager’s experience and credentials also play a big part in what you will pay. Someone with several years of experience and multiple certifications may charge more, and sometimes this can be quite worth it, given the support you receive. Some wealth managers may offer multiple services, which can drive up costs. This can be helpful if you want a comprehensive approach to your finances, but it would be more expensive, too.
If you are dealing with multiple investments, tax planning, retirement planning, or estate planning issues, a wealth manager, even given the relatively high costs, may still be worth every penny. However, let’s understand their duties in detail to help you make a more well-rounded decision.
What does a wealth management consultant do?
Well, the primary job of a wealth manager is to help you with your investments – pick them, manage them, sell them, and optimize them for tax. However, a wealth management consultant does not just do that. They also see the big picture of your money, life goals, debt situation, and future needs.
They take care of everything from your income and savings to your debts and future goals. They will want to know what you care about most. Is it retiring early you seek, or are you only concerned about funding your kids’ education at the moment?
They can help you build wealth with customized financial plans that cover much more than just investments. A wealth manager can help you with various facets of financial planning, including tax strategies, estate planning, charitable giving, retirement planning, and even business succession planning if you are an entrepreneur.
They also look at things like liquidity needs, making sure you have access to cash when you need it, risk management, ensuring your portfolio matches your comfort level, and education funding strategies if you are saving for a child’s college tuition.
Investment management is a significant part of their job as well. They will recommend a portfolio tailored to your goals and risk tolerance, keep an eye on how your investments are performing, and rebalance them as and when needed. They also help diversify your investment portfolio, ensuring it is aligned with your long-term goals.
Some wealth managers even offer more specialized services, such as debt management and family office services for high-net-worth households. At the heart of it, a wealth management consultant is there to simplify your financial life, help you make smarter decisions, and give you peace of mind.
Are wealth management fees worth it?
Wealth management fees, no matter how high or low they may seem, can be worth it in certain situations. Let’s check what these are:
1. If you are a high-net-worth individual with a big portfolio
Wealth management is designed for people who have a whole lot of assets, complex financial situations, and the need for a more autopiloted approach to managing money. If you have a substantial amount of assets, such as stocks, businesses, real estate, private equity, bonds, cryptocurrencies, commodities, national and global investments, and more, then wealth management may be worth considering.
Most wealth management firms have minimum requirements for a client. These minimums can start at $500,000 or $1 million in investable assets, though some firms can set the bar much higher. High-net-worth individuals are generally defined as having a net worth of at least $1 million or more in investable assets such as stocks, bonds, or mutual funds. Wealth managers typically focus on actively growing and protecting these investable assets.
If you are investing in such instruments, have business ownership, or simply have a high-income career, wealth management can be a worthwhile investment of your time and money. Wealth management can also be suitable if you have inherited a lot of wealth and need help managing it.
A lot of people inherit trust funds or humongous amounts of money through wills and do not know what to do with it. Wealth managers can help you invest this money, divert it towards your financial goals, and, more importantly, preserve it so that you do not exhaust it in a few years.
In all of these cases, managing wealth at such a level can get complicated. You might own multiple properties, have several retirement accounts, receive rental income from properties, or hold equity in private businesses. You may also have estate planning considerations, tax planning challenges, or charitable goals that mean a lot to you. A wealth management consultant can help bring all these together, so you are not overwhelmed and pushed towards rushed decisions.
Of course, this level of service does not come cheap. Wealth management encompasses multiple areas of financial planning, for which a wealth manager provides guidance. Because of that, the cost is typically higher than what you would pay for a standard financial advisor. But as steep as this may sound, for individuals with significant wealth, it can be worth it. Having someone actively monitor and adjust your investment portfolio, manage risk, optimize taxes, and coordinate with attorneys and accountants can save you far more than you pay in fees. It can also free up your time and reduce stress.
2. You have a big goal coming up or need help preparing for one
Some financial goals are so big that trying to tackle them alone can feel not just overwhelming but downright risky. Say, you have a big goal coming up, or maybe you are still figuring out how to prepare for one. Either way, the stakes can be high.
Say you are buying your first home. This is not just a purchase but a significant milestone. Similarly, coming into a large sum of money can be exciting, but it can also bring pressure.
Where do you put it, how do you grow it, and how do you keep it safe?
Maybe you have finally reached a point where your income looks great on paper after years of grinding through student loans and undergrad, grad, and postgrad degrees, and now you are wondering what to do next. Or you may be thinking of retiring early or planning to sell a business.
These are big, life-changing financial decisions. And, working with a wealth management professional can make all the difference. They can bring real-world experience, perspective, and strategies that help you see the bigger picture. Sometimes, having someone objective in your corner is exactly what you need to gain control of your finances.
3. You want assistance with multiple financial planning needs
You want help with more than one financial goal?
When your financial needs are many, it can quickly get overwhelming to manage everything on your own. Hiring a wealth management consultant can be worth it.
Say, you are saving for retirement, planning for your child’s education, paying off a student loan, supporting your spouse while they figure out their life, building an emergency fund, and trying to invest wisely, all at the same time. Trying to juggle all of them on your own can be stressful. And it is not just about stress. It can also be risky if you do not have the expertise to make the right decisions at the right time.
Sure, you might be comfortable handling a few areas on your own. Perhaps you have a good idea about the stock market. But financial planning is more than just stocks. It brings together different aspects of financial planning into one cohesive strategy. Furthermore, it is rare to excel in everything at once. And even if you do, it takes time, time that you may not have when you are focused on your career, family, or business.
Working with a professional can be a relief. A wealth management consultant can help you stay in control. At the same time, you would also breathe easier knowing someone is keeping an eye on what needs to be done.
So, where does that leave you?
You can hire a wealth management consultant if your income permits. In fact, if you have several high-value assets, you may consider it with more enthusiasm. Wealth management can have many advantages. It helps you streamline your finances, adopt a holistic approach to financial planning, and lower stress.
In fact, did you know that not too long ago, you could actually deduct wealth management fees from your taxable income?
You could deduct more than 2% of your Adjusted Gross Income (AGI). But then came the 2017 Tax Cuts and Jobs Act, which temporarily took that deduction off the table. Right now, these fees are not deductible at all. But this rule is not permanent. The law is only set to last through December 31, 2025. After that, if nothing changes, the old rules could come back. So, starting with the 2026 tax year, you may once again be able to write off these fees as a miscellaneous itemized deduction, as long as they exceed 2% of your AGI. If the tax deduction does return, this could really make it worth hiring a wealth manager after all!
Our free advisor match tool can help you hire a wealth manager. Check it out today! However, before hiring someone, be sure to conduct a wealth management fees comparison to ensure the price is right.
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