Wealth Management: How Does It Work?

Wealth management is a type of investment advisory service that combines other financial services to meet the needs of high-net-worth individuals. The advisor gathers information about the client’s wants and specific situation through a consultative process, then creates a personalized strategy that incorporates a variety of financial products and services.

Within wealth management, a holistic approach is frequently used. A wide range of services, such as investment advice, estate planning, accounting, retirement, and tax services, may be provided to meet a client’s complex needs. While fee structures for comprehensive wealth management services vary, fees are typically based on the amount of money under management (AUM).

Getting to Know Wealth Management

Wealth management usually encompasses a wide range of services than just investment advice. It can apply to every aspect of a person’s financial life. High-net-worth individuals may benefit more from an integrated approach than from attempting to integrate pieces of advice and products from multiple professionals. A wealth manager uses this method to coordinate the services required to manage their clients’ assets and develop a strategic plan for their current and future needs, such as will and trust services or business succession plans.

Many wealth managers can help with any aspect of the financial industry, but some specialize in specific areas, such as cross-border wealth management. This could be based on a wealth manager’s expertise or the primary focus of the business in which the wealth manager works.

To craft the best strategy for the client, a wealth management advisor may need to coordinate input from outside financial experts and the client’s service professionals (for example, an attorney or accountant). Some wealth managers also offer banking services or help with charitable endeavors.

Example of Wealth Management

Wealth management offices generally have a team of experts and professionals on hand to guide various fields. Consider the case of a client with $2 million in investable assets, as well as a trust for their grandchildren and a recently deceased partner. Not only would a wealth management office invest these funds in a discretionary account, but it would also provide the will and trust services, which are necessary for tax minimization and estate planning.

Wealth management advisors who work for a large bank may focus on trust management and available credit options, overall estate planning, or insurance options. In contrast, those who work for an investment firm may have more knowledge in investment strategy. In other words, expertise may differ between companies.

A Wealth Manager’s Fees

Advisory services can be paid in a variety of ways. Some advisors work on a fee-only basis, charging an annual, hourly, or flat fee. Some people work on commission and are compensated by the investments they sell. Fee-based advisors are compensated for the investment products they sell through a combination of fees and commissions.

According to a survey of nearly 1,000 advisors, the average advisory fee (up to $1 million AUM) is 1%. On the other hand, many advisors charge more, especially for smaller account balances. Individuals with larger balances can often pay significantly less, as the median AUM fee drops as assets grow larger.

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