What is Wealth Management?
I recently had a long-time client ask me why she makes an investment in a Wealth Management Consulting Agreement, when her friends seemingly get the same service and do not make an out-of-pocket investment to their financial professional. My reaction was disappointment in myself, as this client has always been an advocate for me and my practice, referring many coworkers over the years and being engaged in changing her money paradigm. I wondered why she did not have the clarity in my pricing as I expected. It forced me to give it some thought – and this post is my attempt at clarity.
First – looked for a definition from the industry - I settled on two – one from my broker/dealer – Commonwealth Financial Network – and one from Investopedia.
Wealth Management according to Commonwealth:
“We define wealth management as the ability to help protect, preserve, accumulate, and transfer wealth in the most cost-effective, tax-efficient manner possible for existing and prospective clients. What’s quantifiably different about formal wealth management is how those services are provided.”
Wealth Management according to Investopedia:
“Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. Using a consultative process, the advisor gleans information about the client’s wants and specific situation, then tailors a personalized strategy that uses a range of financial products and services.
Often, a holistic approach is taken within wealth management. To meet the complex needs of a client, a broad range of services—such as investment advice, estate planning, accounting, retirement, and tax services—may be provided. While fee structures vary across comprehensive wealth management services, typically, fees are based on a client’s assets under management (AUM).
Wealth management is more than just investment advice. It can encompass all parts of a person’s financial life. Instead of attempting to integrate pieces of advice and various products from multiple professionals, high net worth individuals may be more likely to benefit from an integrated approach. In this method, a wealth manager coordinates the services needed to manage their clients’ assets, along with creating a strategic plan for their current and future needs—whether it is will and trust services or business succession plans.”
Bingo! Commonwealth’s definition communicates what Wealth Management is supposed to do, Investopedia talks about how it is practiced, with terms like Advisory, Consultative, Holistic, Tailors, Personalized. So, I think it is fair to say the Wealth Management is a personalized service, for people of wealth who need or want advice tailored to their specific goals. This is a conscience choice, not a must have. Since there are differing views about the role of financial advice and the independent practitioner, from both inside and outside the industry, I am stating to understand why my client and her friends are questioning the pricing structures.
For me, as I enter my 25th year in practice, this is what I found with respect to people and their financial needs as they start their pre-retirement lives. It starts with Objective Advice, since most of what is read or written about personal finances is really sales material masquerading as education. It moves quickly to Comprehensive Financial Planning, which I will define as an underlying process and approach, once trust is established with an advisor, the client is willing to engage, and clarity is made as to the client’s vision. It evolves to Wealth Management as we age and accumulate assets, through career success, delayed gratification through savings, market growth and inheritances. I practice as a hybrid, independent advisor, because I need access to different financial products available to get people to that final stage. Advice is the key, couple with the client’s ability to prioritize their financial life, commit to a mind set and follow guidance.
When client initially choose to work with me, they agree to a Wealth Management Consulting Fee (it takes on different names depending on the understanding of the broker/dealer you are with). The key is it is a consultative process. When they need asset management services, they are also charged or that service. If they need an insurance product, a commission will be paid to the advisor by the company who provides the product. Not as transparent, maybe, as fee-based asset management, but acceptable none the less.
In my opinion, if your advisor is not charging for Objective Advice, Comprehensive FinancialPlanning or Wealth Management, depending on the stage of life you are in, you probably aren’t getting it. In my opinion, it can’t be “thrown in for free”, as an inducement to invest or roll over a retirement account, to have your tax return prepared, or purchase a life insurance policy or annuity. In my opinion, that would be considered advice incidental to the service the client is paying for, or a commission is paid for. Since the needs of wealthy clients are complex, is it reasonable to believe one is getting that guidance if it isn’t actually paid for? Is it possible that potentials aren’t met, or errors occur since the client is expecting an approach that is more investment centered than wealth management centered? These are questions to ask yourself when evaluating your needs as it pertains to managing your hard-earned wealth.
Feel free to contact me at gjacobson@pickandrollwmt.com to go deeper on this topic.