In today's dynamic world, managing money is one of the most complicated tasks. Most people stress about money and often do not have the right financial plan. However, hiring a professional to manage money matters is a wise choice. These professionals have the expertise and experience to handle your financial matters and improve your financial creditworthiness. According to a recent study, professional financial advice can potentially increase your investment returns by at least 3% each year. This enhanced return percentage is also known as ‘The Advisor’s Alpha’. Another investment report claims that hiring a skilled financial professional can increase annual investment returns by approximately 3.75%. Other than monetary value, finance professionals also have a positive mental impact. According to a recent financial planning & progress Study, 67% of individuals working with a financial advisor are clear about how to spend their money wisely and save for the future. People without a financial advisor are not confident about their savings and spending pattern. The study further reports that 59% of the people who work with a financial advisor have a higher retirement readiness score. These people are confident that they are on the right track for retirement and believe they have sufficient funds to support their retired life, and if they work after retirement, it will be a choice rather than a need. On the other hand, 6 in 10 people who do not engage with a professional financial advisor felt they have to work after retirement to support their lifestyle.
This highlights that hiring a professional to manage your finances is a smart decision. However, when hiring an expert, most people get confused between a wealth manager and a financial advisor. Even though these terms are used interchangeably, there is a stark difference between the two entities. A financial advisor offers holistic financial services aiming to improve your overall monetary situation and achieve your life goals. In contrast, a wealth manager is a kind of financial advisor who works with a specific clientele, typically comprising high-net worth individuals. Essentially, both professionals offer the same services and charge similarly. However, a few services offered by these experts differ according to their clientele.
Here is what you need to know to understand the difference between a wealth manager and a financial advisor:
What is a financial advisor?
A financial advisor is a specialized person who helps clients manage and invest their money to achieve a specific goal. These can be short-term goals like creating a budget, increasing savings, reducing debt, creating an investment portfolio, etc., or long-term goals like saving for retirement, paying for college education, generating additional income, minimizing taxes, etc. Financial advisors also help average-income individuals with estate planning and similar services.
What does a financial advisor do?
Financial advisors work with you to understand your current financial situation, risk tolerance, investment preferences, and more to create a financial plan, enabling you to achieve your goals. Typically, a financial advisor can offer the following:
- Build a relationship of trust and confidence.
- Analyze your financial information and prepare a tailored plan to help you achieve your financial goals.
- Research and understand the financial markets, investment products, legislative changes, legal requirements, etc., and provide guidance accordingly.
- Help clients with budgeting, savings and debt management, investment management, tax optimization, retirement planning, insurance planning, and estate management.
- Prepare your annual financial report, apprising you of your progress towards meeting financial goals.
That said, the term financial advisor is broad and does not refer to any particular type of advisor. Some professionals offer all financial advisory services, while others specialize in specific services, such as tax management, estate planning, retirement planning, etc. For instance, a CPA (Certified Public Accountant) is a type of financial advisor who has expertise in taxes and accounting. A CLU (Certified Life Underwriter) is proficient in insurance and estate matters. An RICP (Retirement Income Certified Professional) is a person with a specialization in retirement planning in addition to general financial planning. A CFP (certified financial planner) can provide expert services on holistic financial matters, such as budget, debt, tax, insurance, retirement, investment, and more. Hence, the best way to engage with a financial advisor is to understand their certifications, check their area of expertise, and decide if they fit your needs.
What is a wealth advisor?
Typically, wealth advisors or wealth managers are a subset of financial advisors and primarily focus on providing wealth management services to high-net-worth, very high-net-worth, and ultra-high-net-worth individuals. While there is no formal definition of a high-net-worth individual, financial experts state a high-net-worth individual is a person with a minimum of $1 million in liquid assets. Liquid assets refer to money held in bank or brokerage accounts and do not include real estate holdings, durable goods, collectibles, and other valuable but fixed assets. People with a net worth between $1 million and $5 million are high-net-worth individuals; people with liquid assets between $5 million and $30 million are very-high-net-worth individuals, and those with liquid assets above $30 million are considered as ultra-high-net-worth individuals.
Wealth advisors offer a range of services, such as investment management, capital gains planning, tax planning, financial planning, retirement planning, risk management, philanthropic management, legal planning, estate management, succession planning, and more.
Wealth managers typically use the same fee models as financial advisors to charge for their services. These can include hourly arrangement, retainer fee, or the AUM (Asset under Management) method. In some cases, financial advisory firms also extend their services to offer wealth advisory support to their high-net-worth clients.
What does a wealth manager do?
Wealth advisors assess your comprehensive financial situation, understand your unique priorities, and offer services that best fulfill those requirements, taking help from financial advisors whenever required. Typically, a wealth advisor can:
- Manage your entire financial state of affairs, including investments, retirement, tax, estate, trusts, lifetime care, insurance, succession and family legacy planning, and more.
- Regularly communicate with you regarding your financial standing, portfolio performance, estate assets, changes, maintenance, and potential problems.
- Maintain and grow relationships with attorneys, bankers, accountants, and other related professionals
- Provide in-depth understanding of local, state, and federal tax and financial regulations
- Support succession or family legacy planning
Wealth manager vs. financial advisor: Key differences
|
Basis of Difference |
Financial Advisor | Wealth Manager |
|
Definition |
A professional offering holistic financial planning and management services to all types of clients. |
A professional offering financial management services to high-net-worth and ultra-high-net-worth individuals only. |
|
Objective |
To manage the finances of average clients. The goal is to amass wealth. |
To manage wealth. Wealth managers offer services to clients with an established wealth base. |
|
Clientele |
Every day clients who require financial planning support. These clients generally have liquid assets of less than $1 million. |
High-net-worth, very-high-net-worth, and ultra-high-net-worth individuals. Such clients have liquid assets worth more than $1 million. |
|
Service spectrum |
Budget creation, savings management, debt management, investment management, retirement planning, tax planning, estate planning, etc. |
Investment management, capital gains planning, tax planning, financial planning, retirement planning, risk management, philanthropic management, legal planning, estate management, succession planning, and more. |
|
Work management |
Relatively passive management compared to wealth managers. |
Aggressive and active management. |
|
Type of work |
Manage everyday, less complicated financial and related matters. |
Handle more complex investment portfolios, real-estate holdings, estate inheritances, business financials, tax situations, insurance needs, and estate planning needs. |
|
Communication and Interaction |
A financial advisor is expected to visit once a year and then touch base a few times a year to apprise of developments and take account of any major financial changes. |
A wealth manager is expected to offer ongoing support and guidance in wealth management. |
|
Networking and engagement |
Is not expected to engage with the client’s attorney, banker, trustee, etc. |
Can serve as a point of contact for professionals engaged in the high-net-worth client’s sphere, such as attorneys, accountants, business managers, etc. |
Do you need a wealth manager or a financial advisor?
The type of financial professional you need depends on your financial situation. In general, if you are a high-net-worth, very-high-net-worth, or ultra-high-net-worth individual and want comprehensive and active management of your wealth, you can consider engaging with a wealth advisor. However, the crucial factor to consider when hiring a wealth manager is your investable asset balance. You should have at least $1 million in investable assets, excluding personal property and assets, including consumer durables, primary residence, collectables, etc.
If you do not have the required investible asset balance, you can engage with a professional financial advisor to get more suitable services per your financial situation. Alternatively, if you do not require holistic financial management services and only need specific expertise, such as tax management, retirement planning, insurance management, etc., you can engage with an expert financial advisor with specific certifications to offer specialized services. If you are only beginning your financial management journey and need help with initial planning, you can opt for a more general background professional like a CFP.
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How to hire the right financial professional for your financial goals and needs
Ultimately, choosing an advisor does not have to be complicated or stressful. If you want to find an advisor who fits your purpose and is worth your money, you can follow these simple steps:
- Estimate the value of your liquid assets to distinguish if you want to hire a wealth manager or a financial advisor. You can do this by calculating the balance of your bank and brokerage accounts.
- Post this, identify your financial needs. Understand if you require general services like holistic financial management, wealth management, or specialized help like retirement planning, insurance management, tax planning, estate management, etc.
- Create a prospective list of financial or wealth advisors. To do this, get references from your peers, family, and friends, or use a free advisor match tool to select a qualified professional for your needs.
- From your elaborate list, shortlist the candidates based on their certifications, education, employment license, expertise and experience, authorizations, clientele, work reviews, fee models, investment philosophy, ethics, etc. You can use FINRA’s BrokerCheck tool to find this information about a certified financial advisor.
- Schedule interviews with the shortlisted candidates, and make a list of relevant questions to ask, such as:
- What are their qualifications, certifications, and credentials?
- What is their area of expertise?
- What is their experience in financial advisory or wealth management services?
- What is their existing clientele?
- What are their account balance requirements (how much do they need in liquid assets)
- What are their investment philosophy, ethical values, and the applicable fee model?
- What is the preferred mode of engagement? What is the frequency of engagement?
- Any client references they can provide?
Be open about asking relevant questions. It is critical to understand the professional and their work style to ensure you are working with a trusted, reliable, and experienced person with whom you can build a long-lasting relationship.
To summarize
Broadly, a wealth manager and a financial advisor are intertwined due to the scope of services offered by them, but the former is a subset of the latter. Financial advisors offer financial planning services for their clients, and wealth managers are financial advisors who only work with a specific clientele. The services of a wealth manager are more suitable for clients who have an intricate financial situation. If you have an average net worth below $1 million in liquid assets and require straightforward financial management services, consider engaging a professional financial advisor who offers the necessary support. Alternatively, if you have a liquid asset balance of $1 million or more, you can consider opting for a wealth manager who can help you preserve and increase your wealth.
Use the free advisor match service to get in touch with a professional who can help assess your financial situation and offer services based on your needs whether they may be for holistic financial planning or managing your wealth. Based on your requirements, the platform scans through registered and qualified advisors to match you with an advisor suited to your financial needs and goals.
For more information on the most suitable financial services for your unique financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.
About Dash Investments
Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.
Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.
CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.