What Is Wealth Management and How Does It Work?

For many of us, seeking help from financial experts is a wise choice. These professionals have the expert knowledge, industry experience and steady decision-making skills required to manage money. After all, it’s what they do full-time. 

Many people have turned to a financial advisor for help with their finances. But you may have also heard the term “wealth management” and wondered how that differs from traditional financial advice. 

In this article, we’ll help answer your questions about wealth management so you can decide if it’s right for you.

What is wealth management?

Wealth management is a financial advisory service that helps manage many aspects of your finances. This includes, but is not limited to:

• Investment advice and direct investment management

• Tax services

• Accounting

• Estate planning

• Retirement planning

Wealth management services take a holistic approach to managing your money — some even provide banking services, allowing all of a client’s financial matters to be handled under one roof. 

Wealth management companies often combine many services that typically would need independent experts. For instance, a single wealth management firm could potentially replace the need for a financial advisor, CPA and lawyer.

Wealth management is designed for high-net-worth individuals and families. Many firms require a certain level of wealth before taking on a client. This can range anywhere from $250,000 to $2 million or more. Some firms only accept ultra-high-net-worth clients with assets in the hundreds of millions. 

How wealth management works

When you work with a wealth management company, you will likely be assigned to a single manager or advisor. She, or he, will be your contact point at the company and will handle most of your financial affairs and will provide advice. 

Because these companies offer so many different services, the advisor may call on the advice of other experts from within the firm. 

For instance, many wealth management firms have CPAs and legal experts on staff to help with tax compliance and estate planning, respectively. You may at times speak directly with these experts, or you may handle everything through your dedicated advisor. 

Depending on the firm, you may get all of these services for one flat fee, or you may need to pay individually for each service. 

Wealth management fees

In most cases, wealth management fees are based on a percentage of your assets under management (AUM). The fee is charged every year and also depends on factors like the size of the firm and their specialties. 

The industry median is around 1% per year. That means that if you have $1 million in assets under management with the firm, you will pay approximately $10,000 in fees each year. And the fee grows along with your wealth: reach $1.5 million, and you will pay $15,000 in fees. 

Fees are generally higher for smaller accounts. An individual with $500,000 in AUM may pay 2%, for instance. 

Fee percentages go down for higher asset balances. For example, a family with $10 million in AUM may pay just 0.5%. 

Wealth management vs. a financial advisor

What is the difference between wealth management and a financial advisor? A financial advisor can refer to a number of financial professionals. In many cases, the term refers to experts who provide financial advice to clients and who may or may not directly manage the clients’ assets.

In other words, many financial advisors are sometimes just advisors, providing advice and guidance, but not necessarily directly managing wealth. 

Wealth managers, on the other hand, almost always manage investments directly and provide a suite of other financial and advisory services. 

The other big difference to keep in mind is that financial advisors work with everyone, while wealth management is generally for high-net-worth individuals. 

A financial advisor can provide guidance even if you have a negative net worth — i.e., you have more debt than you have assets — whereas wealth managers typically won’t work with clients who have less than a certain amount of investable assets. 

When should I get a wealth manager? 

In general, wealth managers can be a good option for high-net-worth individuals who want all their financial affairs handled in one place. 

Wealth management can be costly, but it’s a way for wealthy individuals and families to get expert help managing many aspects of their finances. It’s a relatively hands-off approach, which could work well for those who’d rather not spend much time or energy managing their financial affairs. 

When should I get a financial advisor?

You can likely benefit from a financial advisor if you want some qualified expert advice on budgeting, saving, investing or retirement planning. 

The benefits of a financial advisor can apply to almost anyone. This is particularly true of fee-only financial advisors who charge a one-time upfront fee for a consultation rather than the ongoing percentage fee of assets under management. 

These fee-only financial advisors simply provide advice for your investment planning process, and set things up so that you can manage your finances directly. 

When should I manage my own money?

Both wealth managers and financial advisors charge fees, so many people opt to simply manage their own money.

This is certainly not for everyone. You may only want to commit to managing your own money if you are confident in your financial knowledge and in your ability to make rational financial decisions, even in stressful situations such as a stock market crash.

Keep in mind that you may still need to seek expert help for certain aspects of your financial life. Even if you manage your own investments, you may benefit from using a CPA for your tax returns or a lawyer for your estate planning. 

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