More and more banks, brokerage firms and independent investment advisory firms are referring to themselves as wealth advisors or wealth managers instead of bankers, brokers, and advisers. What is wealth management?
Answer:The obvious answer is that wealth management is the management of wealth, which one dictionary defines as "an abundance of valuable material possessions or resources." The concept of abundance is relative. A full shopping cart might constitute abundance to a homeless person.
For a wealthy person, abundance might mean ample material possessions and resources, which can include things such as money, gold and silver, mineral rights, securities, real estate, collections, and access or rights to these items. To all, being wealthy includes being healthy and surrounded by friends and family.
In a financial context, wealth management can broadly be defined as guiding the total financial affairs for a person or family that has wealth or is in the process of gathering and growing wealth.
Wealthy people want to maintain their lifestyle. It may be ostentatious and outrageous, it may be humble and modest, or it may be somewhere in between, but whatever they chose, they want to keep it.
Wealthy people, like everyone, have goals and dreams. They want to protect and provide for their family, enjoy life, pass wealth to their heirs, help charitable causes, and serve others in their community.
They also have needs and worries. Having lots of money can be problematic. Wealthy people need to protect themselves and manage their assets. Their biggest concern about money is losing it. They want to preserve their wealth so they can continue their lifestyle and provide for their heirs and favorite charities.
For the most part, they are successful because they are extremely good at what they do. But they are also wise enough to know their limits. That's why they hire a wealth manager.
So what's involved in the management of wealth? It is much more than just investment management. It's not just a matter of buying stocks, bonds, and mutual funds. It's about really knowing the wealthy client and working with them to fully understand what their goals are and what needs to be done to reach those goals.
It is about independent, private, personalized, and sophisticated advanced financial planning and ongoing collaboration and consultation with the client and the client's other experts (e.g., their tax professional and attorney).
Taxes are a big concern to wealthy individuals and families. The Tax Policy Center is predicting that households making more than $1 million in 2013 will pay more than 37 percent of their income in federal taxes alone. Add in state tax (California's top rate is 13.3 percent), property tax, sales tax, and other miscellaneous tax and they will be paying well over 50 percent of their income in taxes. Through advanced planning, wealth managers help clients optimize their portfolios to get the best possible after-tax investment returns without taking unnecessary risks.
Working with their client's attorney, a wealth manager can help clients plan to efficiently transfer their wealth to future generations or to charity. They advise them, with no conflict of interest, on insurance solutions for estate liquidity, property and casualty loss, medical costs, and long-term care.