The term “wealth management” sounds impressive, but in reality, few people actually know what it means. How does wealth management differ from the services of a regular financial advisor or financial planner? And, is it right for you?
Financial and Retirement Planning
Investment Management
Cash Flow Planning
Estate Planning
Tax Planning
College Planning
Insurance Strategies
Long-term Care Planning
Social Security and Medicare Strategies
Traditional financial advisors, sometimes referred to as stockbrokers, focus primarily on investment strategy and asset allocation. Most also provide upfront financial planning, which is usually limited in scope.
Financial planners focus on detailed financial planning that addresses many aspects of your financial health. They can help you create a plan to achieve your financial goals, manage risk and pass on your wealth tax-efficiently.
Asset managers primarily focus on growing your investment wealth by offering specialized investment advisory services. Clients of asset management firms are usually institutions or very high net worth people.
Private wealth managers combine all of these disciplines to deliver a convenient, all-in-one solution. Many wealth managers are financial planners, or they may be investment managers with a dedicated financial planner on their team. Rather than charging planning fees, they may incorporate both planning and investment management fees into a single advisory fee based on assets overseen.
One of the biggest reasons to use wealth management services is to get a qualified double-check on your finances. Everyone talks about desiring true financial independence, but achieving this can be difficult. Even those with high income and assets experience painful setbacks.
And that’s understandable. Managing your own money is not easy, and in today’s fast-moving markets, expensive mistakes are all too common. A professional wealth manager can be a check and balance to minimize mistakes and instead, help you keep what you’ve built.
For retirees, wealth management is even more important. Doing it yourself may have worked in the past, but once your income stops, you have much less margin for error. Managing your money without professional assistance can be stressful, especially when the market gets volatile. This can be worsened by the natural cognitive decline that happens through aging. This heightened emotion and mental slowdown are compelling reasons to have a professional overseeing your retirement income strategy and investments.
Wealth managers charge differently than many traditional financial advisors and financial planners. Most wealth managers charge a flat advisory fee that is based on the amount invested with them.
While advisory fees can vary depending on the services provided, you can expect to pay about 1% of your total investable assets under management per year. Smaller accounts may pay a larger percentage, while larger ones may pay less. This is an annual fee you will typically pay in quarterly installments.
While the difference in titles can be subtle, a wealth advisor provides guidance on how to grow and preserve your wealth. This differs from a wealth manager, who takes a more hands-on role in helping you implement all that advice. A wealth manager will typically provide similar advice, but also help you carry out those plans.
Working with a firm who specializes in your demographic is essential. For example, our firm serves retirees and those approaching retirement. So we’re very well versed in retirement income generation, managing risk, Social Security, Medicare and tax planning. The planning on the front-end related to all these topics informs the implementation on the back-end, so you want those most experienced with the challenges you face.
The most critical time for hiring a wealth manager is as you approach retirement. Ideally, you want to make the right moves to secure your income and protect your wealth before you leave your job or sell your business.
Our firm employs a unique process called the 4 Buckets Retirement Income StrategySM that helps our clients create predictable retirement income. With this process, your income needs are matched with a strategy that helps you feel financially secure no matter what the stock market is doing. Then, we also look for ways to manage your taxes and increase your wealth.
For retirement savings allocated to Bucket 3, these assets are often placed in an annuity. By pooling longevity risk (the risk of retirees outliving their money), retirees can have the assurance of lifetime income. Additionally, retirees can avoid the potential pain of sequence of returns risk which is when distributions amplify losses in an investment portfolio.
We look at a multitude of annuity types and annuity carriers when seeking guaranteed lifetime income. Please note that guarantees extend to the claims-paying ability of the insurer.
As wealth managers, we allocate a portion client’s retirement savings to Bucket 3 based on the impact that different amounts have on income and legacy outcomes according to the strategy.
Assets allocated to Bucket 4 are managed according to our proprietary model of exchange traded funds (ETFs). We use index ETFs in particular to gain broad diversification in different market sectors and to minimize fee drag and adverse tax consequences. This is an actively traded model incorporating minimal turnover and tactical investment decisions called “tilts.” These are small investment decisions based on perceived market opportunities. For example, domestic equities may be in favor over international, or growth may be in favor over value. We strive to tilt our portfolio towards these currently favorable trends.
This is designed to be a high-growth equity model and will not have lower than 90% in core equity sectors. We do not try and time macro developments in the market. When clients have implemented the 4 Buckets Retirement Income StrategySM, they have committed these assets to be long-term growth assets. There is not concern about secular market trends, but rather maintaining appropriate balance across the 4 Buckets to meet retirement income needs. This level of discipline is hard to achieve for both advisor and client unless a commonly shared strategy is in place. Clients typically have a small percentage of their retirement income contributed by this bucket, with the primary purpose for long term needs, larger periodic withdrawals, and unique tax efficiencies.
Fees for our management of these assets operate according to a blended schedule and will include trading costs and expense ratios of the underlying ETFS. See example below:
Once the 4 Buckets Retirement Income StrategySM is in place and we have been chosen to serve as your wealth management team, our role has several additional responsibilities beyond management of your investments. First, we help clients stay committed to the strategy based on current needs. If needs have not changed, then outside influences whether they be stock market, political, or global should not cause deviation from the plan. If material changes develop for a client, then we revisit our 4 Buckets allocations and adjust accordingly.
As time goes on their will be various tax and estate considerations along the way. How do you want assets transferred to beneficiaries? How will your spouse be taken care of in the event of your passing? What are income tax implications for you long term based on your current strategy? What are potential tax consequences for your heirs? We, along with local attorneys and accountants have the expertise to guide those decisions comprehensively for our clients.
