If you are considering working with a wealth manager to handle your finances, it’s important to understand how wealth management firms get paid in order to determine if hiring this kind of firm is the right choice for you and your family. Wealth management firms will vary in their method of business so be sure to check with your firm to see their specifications.
What is a Wealth Management Firm?
A wealth management firm is comprised of professional financial services experts who offer investment and wealth management services for affluent clients. These firms work with high-net-worth individuals to achieve the client’s financial goals and manage their investments in a strategic and comprehensive plan that is tailored to each client’s individual profile.
Some of the services a wealth management firm offers include:
- Investment strategies
- Tax strategies
- Real estate strategies
- Retirement planning
- Estate planning
- Legacy Planning
- Business planning
- Sell=side advisory services for business
- Risk management
What Does a Wealth Manager Do?
The wealth manager collaborates with the client through a question-and-answer session about their expected goals and outcomes for investment and wealth management. From this information, the wealth manager develops a customized strategy to manage the client’s wealth with their unique goals in mind.
Keep in mind that it is best to select a wealth manager who is not satisfied with merely providing a year-end review. While this offers the perfect opportunity to reassess your wealth manager’s progress on your goals and evaluate whether your custom strategy needs adjustment or not, a quality Wealth Manager is engaged in all decisions financially and helps provide guidance as your life requires. This is more than checking the preverbal “box” of an annual review.
In preparation for your meeting with your wealth manager, here are a few questions to consider:
- What advice are you looking for?
- What goals do you want to accomplish?
- Do you need assistance in developing your personal Investment Policy Statement?
- How will you and your wealth manager measure success when it comes to managing your finances and assets?
- How can you develop a plan that will fit your situation and your objectives?
- How high or low is your risk tolerance?
Do I Qualify to Work with a Wealth Manager?
Most wealth managers have a minimum threshold of investable assets in order for you to qualify for their services. Every firm is different, and when you schedule an exploratory meeting, you should describe your current financial situation as well as your future goals to see if you will be a good fit for each other. Some firms may require an account minimum as low as $250,000, while others may require $2 million or more to qualify for their services. The key is to find the right firm with the expertise to grow with you as your financial life-cycle changes.
How Do Wealth Management Firms Get Paid?
Wealth management firms charge for their services in different ways.
Some firms charge a flat fee. There are no bonuses or commissions with this payment model, making it a straightforward option with no hidden charges. However, this may prove to have some limitations for clients where desired products and services may not be available.
Other firms may charge a percentage fee based on the total value of your account. The percentage could be a flat percentage, or it could be a percentage fee scale that changes based on the value of your account.
While flat fees may seem attractive for some, percentage-based fee structures are a great way to align your interests along with a wealth management firm in terms of your growth goals. Your cost is reduced as your assets grow.
When you select a wealth manager, keep their payment method in mind and how it correlates with your overall financial investment plan, but don’t be short-sided. You get what you pay for and if someone is willing to significantly reduce their income, are your interests still aligned?
Is a Wealth Manager Right for You?
With a variety of services available, wealth managers can work with you to create a tailor-made financial management plan to suit your preferences in a professional and comprehensive way. If you are affluent individual seeking assistance with your financial portfolio, a wealth management firm is a valuable tool at your disposal. The best way to get started is to schedule a call with a professional advisor.
