Private wealth management is an investment advisory activity that combines financial planning, portfolio management, and other bundled financial services for people. Personal wealth management works with a financial advisor to solve or improve a client’s financial position and meet short-, medium-, and long-term financial goals.
Private wealth management is providing clients with a wide variety of financial goods and services for them to attain specified financial goals, according to financial advisers.
BRIEF ON PRIVATE WEALTH MANAGEMENT
Some wealthy private individuals might not have the time, motivation, or skills necessary to handle their finances. So they consult wealth managers who specialize in working with private, frequently high-net-worth clients (HNWI) to manage their finances. HNWIs have unique financial circumstances that need more care and active management.
HNWIs need an investment management strategy that is more comprehensive than what many financial advisors can offer. HNWIs may have tax, estate, investment, and other legal concerns that require more attention and specialized knowledge than standard investment advisers can provide.
TYPES OF WEALTH MANAGERS
Banks, major brokerage firms, independent financial advisors, multi-licensed portfolio managers concentrating on high-net-worth people, and family offices can all offer private wealth management services.
Many private wealth management companies are tiny divisions of larger financial institutions committed to offering clients individualized attention. Their main goal is to manage and increase their clients’ assets so that they can support future generations.
These organizations frequently advise on various investments, including cash, fixed-income securities, shares, and alternative investments. As a result, they can put together a portfolio of assets that accommodates the investor’s risk tolerance while also providing room for expansion.
HNWIs might wish to think about starting a family office. A family office offers a wider variety of services designed specifically for HNWIs. Family offices provide a comprehensive financial solution for high-net-worth individuals, including counselling on charity giving and investment management.
Do I require a financial advisor or a private wealth manager?
Working with a private wealth manager can be something you want to consider if you need assistance managing your finances. Private wealth managers can offer a range of services, including investment management, financial planning, and tax preparation, and they often have more excellent knowledge and expertise than financial counsellors.
A private wealth manager can assist you with the following needs:
- investing choices
- managing money
- Long-term care and life insurance
Private wealth managers, who may bill on an hourly, annual, or project basis, do, nevertheless, often demand more significant fees than financial counsellors. A financial advisor can be a better option if you have more modest needs or a limited budget.
HOW MUCH DO PTIVATE WEALTH MANAGERS COST
Different wealth managers may charge their clients in different ways. Their pricing structures frequently resemble those of a financial counsellor. Wealth managers typically bill for their services using the Asset under Management (AUM) fee model, which means the adviser assesses fees based on a portion of your total AUM. AUM, in this context, refers to the market value of the investments that your wealth manager is managing on your behalf.
Your wealth management expenses should typically amount to 1% of the assets under management. But this cost structure uses a sliding scale. As a result, you might anticipate paying less for the same wealth management services as your AUM value rises. For example, industry watchers claim that if a wealth manager charges 1% for every $1 million AUM, the fee may drop to 0.50% at $10 million and 0.10% after that. In conclusion, if your AUM value is $10 million or above, you may anticipate paying about $50,000, which is reasonable in light of potential profits on your investment portfolio.
Some financial managers, as an alternative, also charge a set annual fee for their services. According to market research, this arrangement typically charges $12,500 for a customer worth $1 million and $55,000 for a client worth $7.5 million or more. The annual fee arrangement follows the AUM system as well. The difference is, you must pay a fixed sum annually, whilst in the former, your outflow is based on AUM on a sliding scale.
An hourly rate is the least frequent way for financial managers to bill their clients. In this pricing structure, your contract with a wealth manager for a set number of hours. The more you ask, the more you pay. Although this medium might seem affordable, it has several shortcomings. First and foremost, once you schedule a meeting with your wealth manager, you must provide them with all of your financial facts and specifics. This will result in greater hourly service consumption and higher fees. Second, you can’t be sure that the wealth manager’s recommendations are in your best interests.
Nevertheless, asset managers occasionally mix two payment options to cover their costs. For example, your wealth manager might agree to charge a set percentage of AUM for investing services while charging an hourly rate for advice on succession or estate planning.
However, you can pay more even if your wealth manager charges a portion of the AUM. This is because the AUM model does not consider underlying costs like brokerage fees, trading commissions, transaction costs, account management fees, etc. Therefore, it is crucial to consider and be informed of the exact cost of a wealth manager and the fee structure associated with wealth management when choosing AUM as a payment method.
TIPS ON PICKING AN ADVISOR
Selecting a financial expert is a significant choice that can have adverse long-term financial effects. Therefore, when determining what kind of professional to work with, it’s crucial to make a thoughtful decision. The following advice will help you select the ideal advisor:
- Verify their complete licensing and expertise to assist with your specific demands.
- Inquire about their background, training, and areas of competence.
- Find out the services and products the advisor provides and the associated costs.
- Obtain recommendations and referrals from reliable sources
- Meet with the advisor to determine compatibility and ensure they are clear in their explanations.
- Look into the background and disciplinary history of the advisor.
- Verify any licences or certifications the financial advisor may have, including whether registered with FINRA or the SEC (if they are also a licenced investment advisor).
- Before signing any documents, carefully read them (including the fine print)
- Before making a decision, get everything in writing
KEY LESSONS
Make sure you’re working with someone with your best interests in mind regarding money and the expertise to suit your specific demands. High-net-worth individuals primarily benefit from private wealth management.
