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What Is Wealth Management?

In the 1920’s, author George S Clason released a simple but powerful story titled The Richest Man in Babylon. Serving as an introduction and inspiration for the power of compound interest, this parable brings the concepts of wealth-building into stark focus. It consists of seven cures for a lean purse, the third of which is this: “Make thy gold multiply.”

Wealth management consists in turning this idea into a reality. While it can entail many elements of an individual’s financial plan, the primary focus is on the investment of wealth customized to best meet the individual’s goals. This can include such subjects as risk management, tax strategy (capital gains, dividends, interest), and estate planning.
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Is a wealth manager an important member of your “master mind group,” as Napolean Hill (author of Think and Grow Rich) would term it? The answer is, it depends. A wealth manager often advises high-net-worth individuals who have significant amounts to invest, often with a minimum in the hundreds of thousands of dollars. If this describes your situation, you deserve a huge congratulations! If you are still working toward this liquid net worth, then a financial advisor may be the better option.

While there is no one-size-fits-all definition of a wealth manager, the common themes may be summarized as follows:

• Holistic financial planning
• Investment advice
• Tax strategy
• Estate planning
• Education planning
• Insurance
• Retirement income planning
• Charitable giving

Depending on the wealth management firm, services may also be rendered around the planning of business succession, budgeting, philanthropic activities, trusts and wills.

Do I Need a Wealth Manager?

The first decision to be made is this: Do you expect to benefit from the services of a wealth manager?

A few questions to ask yourself might be:

• Are you the type of individual who has strong opinions about markets, investments and strategy?
• If so, are you willing to take the advice of someone who will likely have a different opinion or philosophy from your own?
• Do you have formal training in finance and/or investments specifically?
• Are you willing to pay a professional in order to free up your own time to focus on your core competencies and values?

While it is not a requirement that you listen to and agree with your wealth manager 100% of the time, the key to success with investing and financial planning is a consistent and repeatable strategy. Gut instinct and speculation, like gambling, may possibly provide you with success from time to time, but it is far more likely to work against you. This is one of the biggest reasons to choose a wealth manager as an integral part of your master mind team. It helps take the emotion out of investing and balance out the common pitfalls of human bias.

Rather than spending your time and energy in the research and trading, especially if you are not an expert on the subject, you are likely to find it far more valuable to focus on your own money-making skills through your own specialization and allow the professional wealth manager to devote the time and skill to the efficient maintenance and growth of your accumulated assets.

In the world of investment, the illusion of information and the human tendency to see cause-effect relationships where none exist can easily lead to a situation where one knows just enough to be dangerous to themselves. While no wealth manager is perfect, and no one is going to be correct all of the time, the odds will be more in your favor over the long-term if you maintain a consistent and repeatable strategy based on educated opinions of a professional who understands the details, the pitfalls, the risks and potential rewards of investing.

How to Choose a Wealth Manager?

As with any profession, the competencies and specializations of a wealth manager are going to differ from one person to the next. While any professional selling investments should have a financial license such as the series 6, 7, 63, 65 or 66, there are other ways that a wealth manager may differentiate themselves from the competition.

Wealth managers may pursue further education to obtain certification with more specific knowledge over a broader range of topics. Some of the most popular certifications you may come across are:

• Certified Financial Planner (CFP)
• Certified Investment Management Analyst (CIMA)
• Certified Private Wealth Advisor (CPWA)
• Personal Financial Specialist
• Chartered Financial Analyst (CFA)

While none of these certifications guarantees that they can perform better than another advisor or manager, they offer two major benefits to the individual choosing a wealth manager.

Firstly, it provides evidence that the manager has dedicated serious study to his or her profession.

Secondly, it shows that, at least at one time, they have demonstrated an extensive knowledge of the subject. Knowledge does not necessarily equal better performance or service, but it does offer the confidence that they have the ability to pass rigorous exams and have been exposed to deep levels of theory on the subject matter.

While an internet search for wealth managers in your area may be a good place to start, you might consider asking a few friends in a similar financial situation to your own who they use, if anyone, and how their experience has been with a particular manager. The longer someone has been with a wealth manager, the better they can assess and give an opinion on their satisfaction or dissatisfaction with the service.

For example, if someone joins a wealth management firm immediately before a bear market commences, they may have a very different opinion than the individual who joined five years ago and experienced the benefit of the bull market leading up to the bear. Most investors are in it for the long-term, to meet lifetime goals, and so the long-term perspective is going to be the more important one.

Another important factor is this: do you like the person doing the managing? Personality counts for a lot. If you’re entrusting your hard-earned money to this person to manage, you’re going to have many interactions with them.

Do you come away feeling encouraged or just annoyed?

Do you feel drained or inspired after speaking with them?

Do they engage you with more than just business-speak, being genuinely kind and curious about other aspects of your life?

You want someone who truly cares about you and your situation, rather than someone who is only in it for the practical business side of things. After all, you will be spending a good deal of time with this person who becomes a member of your master mind team.

Finally, you can learn more about a wealth manager through FINRA BrokerCheck and the SEC’s Investment Advisor Public Disclosure. The former allows you to confirm whether the person or firm is registered to sell securities and offer investment advice, while also providing a history of employment, any regulatory actions, and investment-related licensing, arbitrations and complaints. The latter will give you information of whether this firm is registered with the Securities and Exchange Commission (SEC) and whether there have been any disciplinary events involving the advisor or key personnel.

Conclusion

If you have built your liquid net worth to at least a few hundred thousand dollars, a wealth manager can provide you with a valuable service. The value of that service will depend on the wealth manager’s competencies, the agreement of investment philosophies between the two of you, the consistency of the strategies employed, and of course reasonably stable economic and political structures. Whether you are a novice to financial topics or a PhD on the subject, utilizing a wealth manager’s services can free up your time and energy to bring balance and efficiency to your life.\ You can continue to focus on your core money-generating abilities as well as quality time with your family, friends and pursuing hobbies. The value of such a strategy can be exponential over the years.