How To Decide If A Wealth Manager’s Right For You

11 mins

How To Decide If A Wealth Manager’s Right For You

What Is A Wealth Manager?

Let’s face it: managing money can be tricky. Working out what you want to achieve, deciding what to invest in, sorting out your taxes, adjusting your portfolio – it’s all more than a little daunting to the uninitiated. And that’s why people often look for help from the experts – and no, we’re not talking about the gang at Finimize.

We’re talking about those people whose bread and butter is giving you financial advice. That might be a financial advisor, who looks at your circumstances and picks out some investments that’ll suit you. But financial advisors don’t actually manage your money: they entrust it to fund managers. If you’re looking for someone to make decisions on your behalf, a wealth manager’s what you’re after.

Not only do wealth managers offer advice tailored to your situation, they implement the plan for you from start to finish. You give them your money, and they invest it for you. Simple as that. And they’ll spruce up your finances in a variety of other ways too: setting up trusts for your children, tax planning, insurance and so on. Wealth managers offer, as they might put it, a “holistic wealth service”.

Wealth management has historically been reserved for the ultra-wealthy, but competition from new products has driven down prices and made it far more accessible. So if you’re wondering how to make your money work harder for you, you’re in the right place. We’ll explain how wealth managers justify their fees and how they go about helping you, and get you to a stage where you can decide if hiring one of your own is the right way to go.

The takeaway: Wealth management is about giving you financial advice and managing your money on a daily basis.

Financial Planning

Money – and hear us out here – isn’t actually that useful in and of itself. Sure, Scrooge McDuck likes to take a dip in his pool of coins every morning, but by and large his vault full of money is just sitting there. Fact is, that cash doesn’t mean anything until McDuck turns it into something he wants.

That’s where financial planning comes in. A big mistake lots of people make is working towards goals that benefit them in the short term, but not in the long term. A wealth manager makes a point of working with you to help you figure out what your goals should be. They’ll take into account your short-term aims – buying a house, maybe, or paying for a wedding – and then assess how to make them one part of a much longer-term plan – like setting yourself up to retire early (or, if you want to get all Scrooge McDuck about it, filling a vault full of gold coins).

A big part of financial planning, in fact, is preparing for retirement – whether that’s setting up a pension or deciding what to invest in. It’s here where wealth managers’ tax-planning really comes into play. They’ll even help you pass on your wealth after you die, since arrangements like trusts and pre-death gifting can make sure there’s more for you to hand down.

A wealth manager will also talk to you about the constraints you’re working with. If you’re trying to build a hefty pension pot but only earn $30,000, for example, you won’t be able to save as much each month as if you were earning $100,000. Or if you’re going to need to pay your kids’ college tuition, you’ll have to keep in mind an added expense that’ll eat into your savings further down the road. Financial planning is about balancing your goals with your constraints.

To build that plan, wealth managers weave the magic of compound returns. Compounding means your returns generate their own returns, which makes your money grow faster than it would otherwise. So the earlier you start and the more you contribute, the sooner you’ll hit your goals.

Remember, small sacrifices now can go a long way in the future. If, for example, you started saving at 40 in the hope of retiring with a $1,000,000 pension at 60, you’d need a pot of $400,000 generating 5% returns. But if you started at 20, you’d only need $150,000. Of course, it can be hard to find that much cash when you’re young, but a wealth manager will help you figure out how much you can afford to save through budgeting and careful tax management.

Your plan will almost certainly involve investing. That’s how you’ll grow your wealth and achieve your goals, after all. So how exactly do wealth managers decide what to invest in?

The takeaway: Wealth managers build your financial plan by taking into account your short and long-term aims and constraints.

Deciding What To Invest In

So you know what you’re aiming for, and you’ve built a plan for how to get there. Next, your wealth manager needs to figure out what to invest in to execute your plan successfully. Their decision starts off with figuring out your risk profile, based on how much risk you’re willing to take (your risk appetite) and how much risk you can afford to take (your risk ability).

If, for example, you’re a bit more secure and a bit more experienced in investing, your risk appetite is likely to be bigger than the average bear’s. If, on the other hand, you’re close to retirement, you probably can’t afford to take as many risks as someone younger, who’ll have time for their investments to recover if there’s a market crash. And young or old, if you think you can cope with the risk your investments could halve in value overnight, you’re more temperamentally suited to a risk than someone who starts sweating at just the thought of it.

Wealth managers use your risk profile to allocate you a portfolio, or build one from scratch. A riskier profile will contain more volatile assets with higher growth potential, such as emerging market equities. A more cautious portfolio might lean more heavily on government bonds and corporate bonds – assets that are safer, but will probably return less over the long run.

Some wealth managers might give you a “modeled” portfolio. They’ll create a bunch of different templates for different risk levels, and you’ll be assigned the same as anyone else with a similar risk profile. Other wealth managers might give you a bespoke portfolio: something made specially for you, like a haute couture dress. That’s a lot more expensive – and usually reserved for the richer among us – but it might be worth it if your circumstances are really unique.

The portfolio your wealth manager chooses will contain a range of different investment products. It might use passive index funds to track markets as a whole. Or it might invest some with active fund managers who try to beat the market by investing in individual stocks (wealth managers can often access these funds at a cheaper rate than you can). It might even branch out into investments that retail investors like you can’t access – private equity, for example, and venture capital (investing in startups).

Once your wealth manager’s chosen what to invest in, they’ll need to start managing your investment. More on how that works next...

The takeaway: Wealth managers give you a modeled portfolio based on your risk appetite – and it might include assets you can’t access yourself.

Managing Your Investments

There are two types of services a wealth manager can offer: advisory or discretionary.

Advisory wealth management is exactly as it sounds: your wealth manager tells you what they think is right for you, but the final decision is yours. Discretionary wealth management means handing over total control: the wealth manager can buy and sell as they see fit. That saves you time, though obviously you end up with less control. Of course, as you’ll see in the next session, that’s not necessarily a bad thing.

Since wealth management tends to be focused on long-term returns, it rarely involves regular trading – which would bring added costs in the form of transaction fees and the difference between buy and sell prices (the spread). Instead, your wealth manager will invest in a bunch of investments they expect to hang onto for a while.

That’s not to say your investments are left to manage themselves. When you settle on your portfolio, you’ll also likely settle on some rules: that 50% of your money will always be in equities, for instance. But if your equities are performing well, they might grow faster than the rest of your portfolio – which would increase their proportional share to, say, 60%. Your wealth manager would then need to sell off some of your equity holding to bring the allocation back within the agreed-upon range – what’s known as rebalancing your portfolio. This does mean they’re selling your winners, but that’s to make sure they stick to a risk level you’re comfortable with – not letting potentially short-term market factors influence your position.

Your wealth manager will also keep an eye on the wider investment landscape for you. They’ll often work with an in-house team of researchers dedicated to analyzing the market and economy, figuring out the smart moves to make (and if they don’t, their firm will buy another firm’s research instead). This “buy-side” research is different to “sell-side” information: buy-side analysts are there to help the wealth manager make the right decision, whereas sell-side analysts are there to encourage you to trade with them specifically.

These analysts will look at what’s going on in the world and alter your portfolio accordingly. If, for example, a recession’s looking likely, they might reduce your equity position and put more of your money into safer bonds. And during the recovery, they’ll switch you back so you can make better returns.

Whatever’s going on in the wider world, your portfolio will need to change as you do. As you get older, for instance, you might want to move to something a little less risky. And there are tax implications to consider too: if you suddenly start earning a lot more, you probably don’t want a dividend-heavy portfolio that will increase your income – and taxation – further.

So there’s only one question left to answer: how do you know if a wealth manager is right for you?

The takeaway: Your investments will change over time, thanks to portfolio rebalancing and tactical investing decisions.

The Pros And Cons

We talk a lot at Finimize about getting smart about finance, but there’s a lot to be said for hiring your own personal financial advisor if you have the means. For a start, some things (we’re looking at you, tax) are super complicated, and expert advice in those areas could, in the long term, save you a fortune.

Perhaps more importantly, investing is psychologically taxing. You can read about this in more detail in our Pack on Behavioral Investing, but the gist is that being too close to your money can get in the way of good decision-making. Take a market downturn, for example: although the rational thing to do might be to buy stocks at bargain prices, many investors will actually sell their holdings as fear takes hold. Everyone does it – even the pros – and it’s a hard instinct to overcome. But when you outsource the decision-making to someone whose on-screen losses or gains don’t personally affect them, they’ll be able to make more detached and objective decisions.

Of course, wealth managers aren’t the only service that can do that: robo-advisors, which use algorithms to invest your money, do the same thing. But a wealth manager can give you tailored advice that’s based on an understanding of you and your goals, rather than the one-size-fits-all response you might get from a robo-advisor.

Still, all that will cost you. That’s the major downside of wealth management: it can be pretty expensive. Here’s a (non-exhaustive) list of the fees you’ll have to pay:

  • Management fee (1-1.5% of your portfolio’s value each year)
  • Advice fees (either one-off cost or an additional percentage of your assets)
  • Trading fees
  • Fund manager fees
  • Custody fees (you’ll be charged around 0.2% a year on assets held with a private bank)

All that can add up to quite a lot, eating into your overall returns. If you think the expert advice and impartiality will lead to better returns – and less stress – than if you did it yourself, you might decide it’s money well spent. But if you’re prepared for a bit of sweat, taking more active control of your own investments can be rewarding too.

In this Pack, you’ve learned:

🔹 Wealth managers advise you on how to achieve your financial goals, and then invest your money to help you do just that.

🔹They’ll build you a financial plan, based on what you want from life in both the long and the short term, as well as the resources you have to get you there.

🔹They’ll build you a portfolio based on your risk profile, which will invest in a range of assets.

🔹That portfolio will change over time: your wealth manager will rebalance to keep your risk at an agreed level, and when the economic environment changes, your portfolio might too.

🔹Wealth management can be expensive, but the expertise and psychological benefits might make it worth it.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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