When it comes to your finances, planning for the future may be difficult to do on your own. Professional help is available, though you’ll want to make sure you’re consulting the right expert for your needs. For instance, wealth managers are just one kind of financial advisor who works with a specific clientele: those with a high net worth.
However, you don’t necessarily need to be wealthy to work with a wealth manager, so you may want to consider their services even if you don’t have much to invest. If you need help picking a wealth manager or financial advisor, this article will help in your decision.
What is a financial advisor?
A financial advisor is an expert who helps clients with a wide range of financial services. Advisors typically provide financial planning and investment management. In some instances, advisors might only offer one or the other, though.
However, the term “financial advisor” is broad and doesn’t refer to one specific type of advisor.
As we’ve alluded to before, the scope of what a financial advisor can offer the client is large. What services you need will be specific to your situation. Some services we haven’t mentioned thus far include money coaches (advisors that help analyze the money you have and help you better spend and budget it.)
There are also credit counselors that help people overcome large amounts of debt. Financial advisors can help with planning for a divorce or small business development as well.
Requirements to be a financial advisor
Given the broad nature of what a financial advisor is, the range of different certifications is also broad. A CPA licensed financial advisor might help with taxes while a CLU certified advisor specializes in estate planning, risk management, and life insurance.
The most common certification you will find for a financial planner is a CFP® (certified financial planner). Other certifications you can come across are a ChFC (chartered financial counselor), CFA (chartered financial analyst), and FRM (financial risk manager).
One important requirement which does not come in the form of official certification is ensuring your advisor or wealth manager are fiduciaries. Fiduciaries are registered with the SEC and are compelled by law to always have your financial best interest in mind.
Responsibilities of a financial advisor
Job responsibilities of a financial advisor include:
- Building relationships to earn client trust and confidence
- Analyzing a client’s financial information and preparing a tailored plan to help achieve goals
- Researching and understanding financial markets, new and existing products, legislative changes, and legal regulations and requirements
- Preparing annual reports to inform clients of their progress toward meeting financial goals
- Participating in and accurately reporting successful completion of professional continuing education programs
Benefits of a financial adviser
A financial adviser can save you time and money. Clients who have taken financial advice are generally better off in financial assets and pension wealth compared to those who did not take advice.
Taking financial advice will provide you and your family with greater financial security. Through St. James’s Place, Four Wealth Management can offer our clients peace of mind through the St. James’s Place Guarantee.
This guarantees that the recommendations our financial advisers make for our clients are suitable for their circumstances.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.
Salary of a financial advisor
According to the Bureau of Labor Statistics (BLS), the median annual salary in the financial advising field was $89,330 in 2020. The top 10% in this field earned more than $208,000, while the people in the bottom 10% earned less than $44,100.
Situations where you should employ a financial advisor
Work with a Financial Advisor If:
You do not have a high enough net worth for a wealth manager
If you do not reach certain account minimums to open a wealth management account but still wish to have guidance in managing your money, a financial advisor is a great option.
You only desire guidance in one aspect of managing your money
Financial advisors come in all shapes and sizes, all meant to help you tackle specific issues. For example, if you only desire help with taxes and not investment management, certain financial advisors can easily help with just that.
You need a game plan on how to use your money effectively
Financial advisors are trained to help you set long-term goals on how to get the most out of your money in light of your circumstances, objectives, or ambitions.
You do not have time to handle your own money
Not having time to worry about money isn’t just reserved for high-net-worth individuals. Everyone’s busy. If you don’t want to deal with some of the things a financial advisor can help you with, that’s why they’re there.
10 questions to ask a financial advisor
If you think exploring a relationship with a traditional financial advisor is the right move, be sure to ask these 10 questions during the interview process.
Are you a fiduciary?
A fiduciary works in the best interest of the client. Nonfiduciaries need only to recommend products that are “suitable” — even if they’re not the lowest-cost or most ideal for you.
How do you get paid?
Advisors can use a variety of fee structures. To keep it simple and avoid conflicts of interest, focus on fee-only advisors. They don’t get commissions for selling products.
Make sure it’s fee-only — those particular words. Fee-only advisors might charge a percentage of the assets they manage for you (1% is common), a flat fee for services, or an hourly fee.
If cost is a concern, you may want to go with a low-fee Robo-advisor or an online planning service like those mentioned above.
What are my all-in costs?
In addition to paying the advisor, you’ll face other fees — and you’ll want to know what they are. Fees can decimate your savings over time.
A NerdWallet analysis found that a 1% mutual-fund fee could cost millennials $590,000 in retirement savings. You can lose half your net worth without even knowing it, you want to be vigilant.
What are your qualifications?
Financial professionals can have a confusing list of initials behind their names. And whether a finance professional goes by “investment advisor” or has the CFP designation, it’s your job to vet them.
The Financial Industry Regulatory Authority’s professional designations database will tell you what they mean; if there are any education requirements; if anyone accredits the designation; whether there’s a published list of disciplinary actions; and if you can check professional status.
How will our relationship work?
How much access will you have to the advisor? You want to know how often you’ll meet and whether he/she is available for phone calls or emails outside of scheduled appointments.
What’s your investment philosophy?
It’s important to ensure you have the same investment philosophy. When financial advisors do their job is when the market is down and they can convince you to stick to the same page, so you don’t sell at the bottom of a market cycle.
It’s also important to make sure you and your advisor align on investment style.
For example, if impact investing is important to you, you may want to ask whether or not your advisor will be able to help you create a portfolio that aligns with your values.
What asset allocation will you use?
Your asset allocation is how you create a diversified portfolio. It drives most of your returns.
You don’t want someone who is just going to pick U.S. large-company stocks. Your portfolio should include domestic and international stocks and small-, mid-and large-cap companies.
What investment benchmarks do you use?
Advisors should use benchmarks that directly relate to what they’re invested in, or be able to explain why they don’t.
Some managers will use a straw-man benchmark, For example, the advisor says: “My goal is to beat the Standard & Poor’s 500.” But if that advisor is investing in a diversified portfolio beyond simply large-cap U.S. companies, that benchmark is a mismatch.
Over time they should beat the S&P 500 because they’re taking on more risk.
Who is your custodian?
Ideally, your financial advisor has hired an independent custodian, such as a brokerage, to hold your investments, rather than act as his or her custodian.
That provides an important safety check.
What tax hit do I face if I invest with you?
This helps ensure the advisor has your tax bill in mind when making financial decisions.
And asking about taxes and fees is a way to explore what your estimated net return might be. What you want to know is: What do you get to keep after fees and after taxes?
What is a wealth manager?
A wealth manager is a form of a financial advisor, but these professionals tailor their expertise to high net worth clients.
Oftentimes firms require a net worth of over $1 million or more just to open an account. Like a financial advisor, a wealth manager provides a bundle of different services like asset management, investment management, retirement planning, estate planning, etc to help you get the most from your money.
Wealth managers typically only work with high net worth clients, but in recent years certain firms have made it possible to open accounts despite not being officially classified as a high net worth individual (HNWI.)
The SEC defines an HNWI as someone with a net worth of over $750,000. Some firms now have account minimums of $250,000 while others are maybe even as high as $10 million.
Requirements to be a wealth manager
Being a wealth manager doesn’t require any specific certifications, though most managers are usually CFA or CFP® certified. Like any other profession, some wealth managers have more experience and are more qualified than others.
Don’t hesitate to interview any potential manager you’re looking into to get a better idea of their certifications and experience and whether or not they’re the right wealth manager for you.
You can also use services like the CFP Board verification tool or BrokerCheck one to see a wealth manager’s or any financial advisor’s certifications and background.
We recommend that consumers seek financial advisors, including wealth managers, who are registered, fiduciaries.
Responsibilities of a wealth manager
Job responsibilities of a wealth manager include:
- Communicating regularly with high net worth clients regarding portfolio performance, changes, maintenance, and potential problems
- Maintaining and growing relationships with attorneys, accountants, bankers, and others to generate leads and referrals for new business
- Arranging and facilitating meetings with clients and portfolio team
- In-depth understanding of local, state, and federal financial regulations as they relate to client portfolios
- Performing comprehensive risk assessments and working with outside vendors to protect client assets
Salary of a wealth manager
The average annual income for wealth managers was roughly $88,000, according to Glassdoor. However, a huge gamut of data comprises these averages, and depending on performance your income could be much higher or much lower.
Situations where you should employ a wealth manager
Work with a Wealth Manager if:
You do not have enough money to open an account
While the SEC classifies this as someone with a net worth of over $750,000, some firms allow account minimums of around $250,000.
You do not have the acumen to comfortably manage your wealth
Having a high enough net worth to hire a wealth manager doesn’t automatically mean the individual knows how to effectively do it alone. And that’s perfectly okay.
Managing one’s net worth can be a daunting idea for someone without professional training in that realm.
You want one person to handle all aspects of your wealth
Wealth managers deal with everything in terms of an individual’s lifetime wealth as opposed to one or two specific needs. Financial advisors can handle more focused services without including the others.
You do not have time to manage your wealth
Simply put, many people don’t have the time to manage their money but don’t want to just passively invest in ETFs.
A wealth manager can help handle the aspects of financial wealth management that you don’t have time for.
Benefits of a wealth manager
It helps create a financial plan
Wealth management services help investors calculatedly and systematically create their corpus. Wealth managers come armed with t skills that help them understand client requirements and financial goals.
These are taken into account when financial strategies are formulated. Your wealth manager puts in a lot of time to comprehend your needs and helps you meet as many of your financial goals as possible.
It helps eliminate your financial stress
Wealth advisors have a deep understanding of financial uncertainties. They have expertise in the field of taking critical financial decisions for you, should the need arise. Wealth advisors can help you manage your finances during the roughest market conditions, which can often lead to stress.
They help you prioritize your financial decisions based on a timeline. Your advisor takes all your financial considerations into account while creating your goals and also helps you organize your funds from time to time.
You can expect personalized services
Wealth managers understand that there is no “one size fits all” formula when it comes to wealth management. As such, every individual client gets the personalized services of a dedicated wealth manager.
Your dedicated wealth manager creates financial strategies keeping your requirements in mind. He serves as your financial counselor come, confidante.
You can reach out to your manager at any time and discuss your expectations with him, while he attempts to fulfill them by creating various strategies to create wealth in the near and distant future.
They function on a relationship-based approach
Your wealth manager is constantly thinking of your financial well-being which is why, when the need arises, they level with you as a friend would.
They are not interested in impressing you with financial jargon but rather invest their time to help you navigate through troubled financial waters. They also help you make better investment decisions.
Wealth managers use this relationship-based approach through which they can have a healthy exchange of ideas and perceptions and formulate various financial strategies.
The job outlook of a financial advisor and wealth manager
There were 275,200 jobs in 2020 in the financial advising field, according to the BLS. But that number is expected to grow in the 10 years between 2020 and 2030 by 5%, which is slower than the average growth projected for other professions.6
The Bureau of Labor Statistics predicts that demand for financial advising jobs will increase between 2020 and 2030 because of an aging population and longer lifespans.7
The subcategory of financial planning tends to track closely with the trend for financial advising as a whole. Wealth management, by contrast, enjoys explosive growth when the economy booms, but it contracts more than financial advising as a whole during down economies.
FAQs on Financial Advisor vs Wealth Manager: Overview, Difference, and Similarities
A financial planner will be able to connect all of the financial dots to provide you with an overall plan to meet your financial goals. He or she should have training and experience in all kinds of financial products and financial aspects of your life – equities, bonds, insurance, taxes, and estate planning – to make the right recommendations for your situation. A financial planner can also save you thousands of dollars in tax deductions and find higher-yielding investment products at little or no extra risk.
There are several differentiating different financial planning certifications. While a financial planning professional can have any of several designations or certifications, at the very least you should make sure that he or she is licensed and in good standing with the licensing authority.
Choose a financial planner who has experience dealing with clients in similar circumstances to yours. You’ll also want to make sure that the financial planner has your best interests in mind, and that he or she isn’t selling you products that are not suited to your needs. Interview prospective financial planners and ask them about credentials, management strategies, and history of performance.
If the advisor is a Certified Financial Planner, check the Certified Financial Planner Board of Standards. The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and the National Association of Securities Dealers (NASD) are also places to check and make sure the financial advisor has not had disciplinary action taken.
Services offered by wealth managers may include:
Investment management and advice, including retirement planning.
Legal and estate planning.
Accounting and tax services.
Review of health care and Social Security benefits.
Charitable giving plans.
Help with starting or selling a business.
Financial advisors typically earn handsome livings, especially Private Wealth Managers who work for the big Wall Street firms. Those Private Wealth Managers can easily make $500,000. The top Private Wealth Managers make about $900,000, and that doesn’t include their recruiting bonuses, which often are in the millions.
The sales aspect of the job alone could exceed 40 hours per week. Aside from that, you still must service your clients and track the market. Wealth managers also must devote time to building a book of business.
Differentiating between a financial advisor and a wealth manager may seem difficult but by using the information in this article, you can make sure that you are dealing with one of the best financial advisors or wealth managers for your specific needs.