What Do Wealth Managers Do?
Like the former home goods store, wealth management is advising, investing, and beyond. No two firms are exactly alike, but there is a range of common services offered by most wealth management firms.
Let us break it down for you.
Advice
Advice is the most common service that wealth managers offer. It covers things like how much you should save and spend, how to plan for retirement, how to pass on your wealth to your heirs, and how to minimize your taxes.
Advice can be general best practices or specifically tailored by a team of specialists (estate lawyers, tax experts, etc.). The level of advice offered depends on your individual needs and the firm's resources
Investing
Investing is the next level of service that wealth managers offer. It involves managing your money in the financial markets, either directly or indirectly.
Indirect investing means that the wealth manager advises you on how to invest your money, but doesn’t have the power to make trades for you. You still have to do the actual investing yourself, either through a brokerage account or a fund platform. This can give you more flexibility and oversight, but it also means that you have more responsibility and work.
Direct investing means that the wealth manager has the authority (i.e., "discretion") to buy and sell stocks, bonds, and other assets on your behalf. You agree on a mandate or a goal, and they execute it for you. This can save you time and hassle, but it also means that you have less control and transparency over your investments.
Some wealth managers will invest your money directly in individual securities, such as stocks and bonds. The upside to this approach is that the manager can tailor the investments for your specific situation.
The downside is that your manager may not be a good stock picker. Researching individual stocks and offering financial planning advice are both challenging and time-intensive skills. It's rare to find someone who can do both well.
Others will use third-party managers, such as mutual funds or hedge funds, to invest some or all of your money. These wealth firms are said to be "open architecture." The third-party managers charge additional fees for their services, which can eat into your returns. But they also may have special expertise and access that can boost your performance.
Beyond
Beyond advice and investing, some wealth managers offer a range of other services that can make your life easier and more enjoyable. These services can include anything from managing your art collection to helping you sell your business.
These services are not for everyone. They tend to be more expensive and more specialized than advice and investing. They also require a high level of trust and intimacy between you and your wealth manager.
But if you have complex or unique needs, or if you just want to indulge yourself, these services can be very valuable.
How to Choose
So how do you choose a wealth manager? There are thousands of firms out there, each with its own strengths and weaknesses. How do you compare them and find the best one for you?
That's where we come in -- we created Advisors & Investors to explain in plain English what each wealth management firm actually does. View advisor profiles to see the services offered by an individual firm.