What is wealth management? It's confusing. Wealth Managers and wealth management firms
offer comprehensive financial advice in combination with investment management. But
what does that mean? Should you be working with one? Are they worth the investment?
Stick with me, and I’ll explain what wealth management is, what wealth managers can do
for you, how we are compensated and how to determine if you are ready for wealth management.
Hey there, Colin Exelby, here. I am the founder of Celestial Wealth
Management and I provide financial planning for business owners and their families that
makes sense. My goal is to help my clients See the Forest Through the Trees. Wealth Management.
Let’s be honest. The financial services industry is confusing, convoluted, and complex. There are
many different professions within the industry. Stock brokers, asset managers, insurance agents,
CPAs, attorneys, and CERTIFIED FINANCIAL PLANNER™ professionals just to name a few. Research has
shown, when choosing someone to help you with your finances, people gravitate toward someone
they know, like and trust that is from a similar socioeconomic background. But, is that really how
you should choose someone to help you manage your wealth? Someone that's just similar to you Let’s
pull back the curtain once and for all and discuss what wealth management really is. But before
we do, make sure to click on that little like button so YouTube knows this is quality content.
What is Wealth Management?
Wealth Management is widely described as the most advanced level of financial planning services.
This is why many firms and advisors attempt to describe themselves as wealth managers.
Wealth management advice typically consists of cash management, financial planning,
comprehensive investment management, tax planning guidance, legacy planning, and the coordination
of advisors. The key is to maximize ALL of these components by combining them in a single strategy.
In reality, wealth management can be a one stop shop for all your financial needs if you want it
to be. These types of services are often best suited for families who have already acquired
wealth but are looking to have a cohesive strategy to manage that wealth over time.
Wealth management is more than just investment advice:
It often integrates all parts of one’s financial life. Instead of attempting to manage pieces of
advice and various products from multiple professionals, families pursuing wealth
management may be more likely to benefit from an integrated approach and tailored strategy.
In this method, a wealth manager often coordinates the services needed to manage their clients’
assets, working alongside other financial professionals such as accountants and attorneys.
What Credentials does a Wealth Manager Typically Have?
Typically, a wealth manager should have at least one of the four following designations:
certified financial planner (CFP), chartered financial analyst (CFA),
certified public accountant (CPA) or chartered financial consultant (ChFC).
These credentials help to separate wealth managers from the rest of the pack.
They often take a significant financial and time investment to acquire and holders of these
credentials are required to complete continuing education to maintain the designations.
How much money do you need for wealth management?
Actually, the better question is how complex is your financial situation? The more assets
you have acquired, the higher your tax rate, the more complex your family is, and the more
income streams you have, the better the chances are that wealth management would be beneficial.
Do you own a business, or multiple businesses? Do you have a blended family? Do you own assets in
different states? Do you pay six figures in annual taxes? Do you cringe at the
thought of a computer algorithm being 100% responsible for your investment portfolio?
Are you particular about how your heirs would inherit your wealth and what they could do with
it? If this sounds like you, then a qualified wealth manager may provide significant value.
Wealth management vs. portfolio management Often Americans confuse wealth managers
with portfolio managers and there is a big difference between the two.
Portfolio management refers to a service or person who crafts an investing strategy on behalf of a
client. Portfolio management involves picking investments that minimize risk and maximize
returns, but typically does not include other financial planning services. Financial advisors,
investment managers, or portfolio managers who only help you with investments are becoming
dinosaurs. In my opinion, if you are only offering investment advice, eventually you will be extinct.
Wealth management offers more complete financial planning than portfolio management.
It includes comprehensive guidance on a client's financial situation, including
cash flow management, risk management, investment management, estate and tax planning, accounting,
retirement planning and even legal guidance in some cases. A good wealth manager has the
ability to integrate legal, tax, and investment specialists to coordinate a holistic approach.
How are Wealth Managers Paid? While fee structures vary across comprehensive
wealth management services, typically, fees are based on a client's assets under management (AUM).
Wealth managers may work as part of a boutique business or as a subset of a larger firm.
Wealth managers can charge for their services in several ways.
Some work as fee-only advisors and charge an annual retainer fee, a monthly subscription,
or an hourly fee. More and more firms have been using the retainer and subscription model.
I think that is a method of payment that will see increased usage in the coming years.
Hourly fees are most often used when providing advice related to a specific challenge,
not all-encompassing wealth management. Some wealth managers charge fees based
on a client’s assets under management. The more assets you have, the greater impact your decisions
(both good and bad) can have on your net worth. For that reason, the assets under management (AUM)
model is currently the most often used method. For a $1 million portfolio, the industry standard
has long been roughly 1%, but technology has allowed some firms to begin charging
a smaller percentage as assets rise without compromising the ability to deliver sound advice.
Finally, some do work on commission and are paid through the investments they sell.
It’s important to ask how each wealth manager you talk to is compensated and that compensation
isn’t hidden. If you hear something that seems odd or to good to be true, ask more
questions. Often there is more to the story. Well, now that you know what wealth management is,
what wealth managers can do for you, how we are compensated and how to determine if you are ready
for wealth management, its time to end this video. If you think you are ready for wealth management,
feel free to book an exploratory call on my website at celestialwm.com.
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