How Does Wealth Management Work?
Wealth management combines financial planning with an investment strategy to maintain and expand wealth. Services provided under wealth management may include diversifying complex portfolios, transitioning retirement systems seamlessly, and appropriately planning for inheritance taxes and estate plans.
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Wealth managers may not be necessary for everyone, but those who need one may find them invaluable. So how does it work?
Investing
Wealth management refers to all aspects of financial planning and investing for those with significant assets, including coordinating retirement strategies with estate plans, creating tax efficient investment portfolios and finding umbrella insurance policies. Furthermore, asset allocation, diversification and rebalancing could all play a part.
Rebalancing is the practice of shifting your investments between stocks and bonds to maximize returns. But if certain stocks outstrip others in performance, rebalancing may become necessary – known as selling off stocks that outperformed others to bring the overall proportions back into balance.
A good wealth manager should help guide the process of reaching your investing goals within your budget and risk tolerance parameters, acting as fiduciaries – meaning their legal obligation is to put your interests first.
Insurance
Insurance is an integral component of wealth management, as it serves to hedge against investment risk. While a well-balanced portfolio could be threatened by death, disability, or lawsuits related to liability issues arising in its entirety – this form of coverage could provide quick and tax-efficient cash when needed.
Wealth managers offer their expertise on many different financial matters beyond investments, from debt management and retirement preparation, to deferred compensation plans and estate and philanthropic giving strategies.
Some wealth management services require clients to have at least a certain minimum in investable assets or net worth; other firms provide services regardless of such criteria. No matter who the client is; wealth managers aim to offer advice in all areas of wealth, as well as coordinate them into an overall strategy, unlike traditional financial advisors who typically focus on investments alone.
Taxes
While trading costs and fees have received much of the media coverage, taxes remain an equally essential determinant of investor returns. A wealth manager must be capable of overseeing an investment portfolio with taxes in mind as well as assist clients in dealing with concentrated positions in public and private assets as well as estate planning concerns.
Wealth management firms require experts in various disciplines. These professionals often collaborate together to coordinate all aspects of a client's financial picture; for example, tax professionals might help ensure retirement account withdrawals don't put clients into higher tax brackets, or help take advantage of deductions and credits that reduce overall tax bills.
Wealth managers offer services similar to financial advisors; however, their fees tend to be less. A wealth management team may assist business owners with succession planning or help families set up trusts for charitable giving. While all of these services may also be found with regular advisors, wealth managers typically have lower minimum fees and fees than regular advisors.
Estate Planning
Estate planning is an essential service provided to wealth management clients, often working closely with an attorney and accountant(s) to develop a financial plan to protect assets during both life and after death.
Goal of estate planning is to ensure assets pass as desired after death (avoiding taxes), that heirs receive what is owed them, and that an appropriate person manages their finances should they become incapacitated. This often includes setting up trusts or writing out letters of instruction with clear directives.
A good wealth manager should be able to answer questions about complex subjects in language that is accessible for everyday people. Furthermore, they will explain why one strategy might be superior over another as well as how each works with any existing ones that you may already have in place.