It seems like more people than ever before are interested in putting their money to work. According to the most recent findings from Statista, $112.3 trillion in private assets are being managed across the globe, with almost half of that value in North America alone. However, individuals aren’t always sure about which type of professional partner they need to help them manage and grow their assets.
For example, many people are unaware of the difference between paying a financial adviser and hiring a wealth manager. Though the two titles sound similar, each one has a specific role. If you are starting to acquire assets, you owe it to yourself to understand the differences so you can determine the best strategy for your money.
Managing wealth: what is a wealth manager vs. financial adviser?
Let’s start with financial advisers. A MagnifyMoney survey from 2021 shows that around 30% of consumers work with a financial adviser; the majority of those people (55%) make at least $100,000 a year. So, what exactly does a financial adviser do?
Financial advisers generally focus on the most basic aspects of financial planning. This focus frequently includes investment management, basic tax planning and retirement planning. Therefore, if you’re just starting out and need help planning for living and lifestyle expenses, a financial adviser can get you on a good path by explaining important concepts and practices such as budgeting, cash flow planning and more.
Wealth managers offer comprehensive investment and financial planning, much like financial advisers. However, wealth managers offer tips on more complex income, estate and gift tax planning; strategies for philanthropy planning; and guidance on everything from business interests to multigenerational family planning. In a general sense, wealth managers help their clients on much deeper, more customized and more complicated levels. Because of that, some wealth managers carry credentials such as a CFP, CPA or JD.
How to know what finance professional will fit your life goals
This isn’t to say that wealth managers are better or worse than financial advisers. Both types of professionals can be suitable, depending on your circumstances.
For instance, if your primary concern is ensuring that your short-term and long-term lifestyle needs can be met, you might be better off with a financial adviser. On the other hand, if your net worth continues to grow with an increasingly complex asset mix or other circumstances that require more sophisticated planning, you’re better off contacting a trustworthy, reputable wealth manager.
Often, the impetus for someone to move their financial planning from a financial adviser to a wealth manager is a change of life circumstances.
Maybe you’ve inherited assets from a relative. Perhaps you’ve started a business, and it’s booming to the point where you’re starting to realize you’ll need a succession plan. Or you’ve been given substantial equity compensation as part of a coveted promotion. These are all indicators you might need the benefits of wealth management.
Still unsure if you want to move on from your financial adviser to a wealth manager? Below are some more specific life events that might prompt you to interview a wealth manager to assist in handling your assets:
1. You’ve inherited more money than you need to live your preferred lifestyle.
It might sound like the plot of a Hollywood movie, but it happens time and again: People unexpectedly inherit large sums of money. Often, the sum of these new assets exceeds what they expect to need in retirement. This leaves them unsure about how to proceed.
Wealth managers understand how to make the most of a sudden influx of cash or other assets. You can thank their multidisciplinary backgrounds. Most wealth managers understand everything from financial planning and income tax planning to business succession planning and estate tax planning.
2. Your current or anticipated future wealth will exceed the gift or estate tax exemption.
A wealth manager will be able to provide guidance and planning for a much wider span of topics. Because of their interdisciplinary skill sets, wealth managers frequently also serve as the “quarterbacks” in coordinating other legal and accounting professionals.
On the tax side, for instance, a financial adviser will generally be concerned with ensuring that there is sufficient cash to meet tax obligations and that all deadlines are met. In addition to this planning, a wealth manager will often conduct multiyear income tax planning—including tax projections and modeling—and provide sophisticated gift and estate tax planning with a stronger focus on minimizing tax burdens to preserve your wealth.
3. Your current or anticipated assets require decisions you don’t feel comfortable making alone.
Unless you’re working in the financial planning world, you might be baffled by how to protect and steward your wealth. For long-term assistance and guidance, you can trust a wealth manager. Unlike a financial adviser, who will be generally concerned with more specific, tactical planning, a wealth manager will have a longer-term view of how to grow and manage your wealth.
In addition to expert knowledge, a good wealth manager will have the willingness and aptitude to help you address a variety of situations. That way, you’ll feel more confident about your financial choices moving forward.
Financial advisers can be terrific partners when you’re starting to build the seeds of your financial future. Nevertheless, you might wake up one day to find that your needs have outgrown the ability of your financial adviser. When that happens, let a wealth manager pick up the reins.
Photo by ESB Professional/Shutterstock
Susan Jones is senior wealth manager at Plancorp, a full-service wealth management company serving families in 44 states. Susan is a licensed attorney and CFP who has passionately provided wealth management services to individuals, families, fiduciaries and private foundations and their related entities with a focus on sophisticated income, gift and estate tax consulting and compliance, proactive executive compensation planning and succession planning for more than 20 years. Susan understands the many facets involved in creating a successful multi-generational family legacy and uses a forward-looking approach to help clients grow and preserve assets, reduce taxes, and realize both their financial and non-financial goals.