Wealth management has become popular over the past decade due to its potential to help you achieve your financial goals efficiently. Wealth management also enables you to preserve, protect, and grow your wealth. It includes financial planning, investment planning, estate planning, retirement planning, philanthropic planning, and so on. In this blog, we will discuss wealth management’s importance and the various services it provides to individuals.
Wealth Management Explained
In the 20th century, when global wealth grew and the financial market became more complex, investment banks and firms started offering more specialized wealth management services to their high-net-worth individuals. The increase in several wealth managers and financial advisors who specialized in catering to these affluent clients led to a natural progression of more specialized financial services.
Wealth Management is an investment advisory services that utilize financial services to handle the needs and expectations of high-net-worth clients. However, nowadays individuals can also benefit from wealth management. It is a comprehensive financial service including investment management, tax planning, estate planning, retirement planning, succession planning and so on tailored to achieve the financial goals of an individual considering their financial situation.
It focuses on creating a customized strategy that analyses the financial picture of an individual and helps to achieve financial success by taking into account risk tolerance, time horizon, family dynamics, and lifestyle aspirations.
Suggested Read: Difference between Wealth Management and Financial Planning
Importance of Wealth Management
Unexpected life events, unexpected market movements, and rising costs can adversely impact our financial security. Hence, wealth management is more important than ever before. The reasons are discussed below:
- Asset Protection: Wealth management ensures the protection of wealth due to unforeseen events like sudden death, poor financial decisions, and so on.
- Sustained Growth: Individuals can grow their wealth over time by strategically making investment decisions ensuring that their financial objectives are met.
- Customization: Wealth management strategies can be customized depending on the client’s financial conditions and investment objectives. These personalized strategies help individuals make investments that can give maximum returns.
- Peace of Mind: Effective wealth management works as an armor against all the odds that life can throw toward an individual. Hence, an individual can have peace of mind and live a stress-free life.
Generally, wealth management strategies are offered by financial advisors or wealth managers as they are experts in creating customized strategies that meet clients’ needs. However, individuals can also create and implement strategies to manage their investment portfolio and grow their wealth. Let’s discuss the core components of wealth management.
Core Components of Wealth Management Services
1) Investment Management: Investment management in wealth management is similar to the heart of our human body. It is an essential and crucial step. This step involves managing various investments like stocks, bonds, real estate, mutual funds, and so on while considering factors such as risk tolerance, investment objectives, investment approach, time horizon, and preferred industries for investment. It includes important aspects like:
- Asset Allocation: This includes dividing investment into different asset classes. Asset allocation can also mean portfolio management. You are managing your portfolio based on your preference and various other factors.
- Diversification and Rebalancing: It means diversifying your portfolio by investing in different asset classes as this will help in reducing the risks involved due to market volatility. Rebalancing includes selling the assets that are not serving our purpose and buying those assets that can help us achieve our goals.
2) Retirement Planning: One of the most essential investment advice from advisors will be to plan your retirement. The goal is to ensure that an individual can maintain their standard of living after retirement without spending all their savings. Retirement planning includes estimating future income needs by considering inflation, healthcare expenses, and life expectancy.
3) Tax Planning: Effective tax strategies can significantly maximize the returns of an individual. The main aim is to minimize the tax liabilities. An individual can use strategies such as tax-loss harvesting, investing in tax-advantaged accounts, and estate tax minimization. These are some of the best strategies to minimize the tax liabilities and maximize the returns.
4) Estate Planning: This step ensures that the wealth of an individual is distributed according to his wish and with minimum tax liabilities. Strategies such as creating a will, hiring power of attorneys, and investing in life insurance must be followed to ensure a dispute-free wealth transfer.
5) Succession Planning: It is essential to identify the right leader to replace your leadership in exigencies like sudden death, disability of current leader, or plan of early retirement. Once you identify the right candidate to replace you as a leader, you need to start his training, complete legal formalities, and make him independent to make decisions that are in profit of the business and family.
Role of Wealth Manager
Wealth management is a comprehensive approach that includes financial planning that is beyond investing. Wealth management takes a lot of time, energy, skills, and expertise in finance. Many individuals choose to manage their portfolios and some choose to hire a wealth manager, financial planner, or financial adviser. Wealth managers provide a wide range of financial services but let us understand their key roles and responsibilities.
1) Customised Financial Planning: Wealth managers or wealth advisors provide personalized financial plans as per the financial situation and financial objective of an individual. These people are financial experts who understand an individual’s current and future financial status and guide them accordingly.
2) Risk assessment and management: Individuals prefer to hire a wealth manager due to this reason. An individual might have financial knowledge but might not be able to assess the risk involved in investment. Here, the wealth manager plays a vital role as he will help you invest after assessing the level of risk tolerance.
3) Financial Advice and Education: Wealth managers typically will provide financial advice and also give you the required education related to market volatility. They will also create financial strategies tailored to the life situations that occur in your life.
4) Fiduciary role: A wealth manager must be a fiduciary which means he is obligated to give you unbiased content and advice that is in the best interests of your financial goals. Wealth manager will suggest financial products and services that will suit your portfolio and your financial objectives.
5) Wealth Strategies for Future Life Stages: We all grow in our lives and as we grow, our needs and desires change. Wealth strategies are designed for the current and future stages of life to accommodate these changes and be on our financial track.
Suggested Read: What does a wealth advisor do?
Wealth Managers Charges
Wealth managers do charge fees for giving you financial security with their financial services. Let’s see the fee structure of a wealth manager.
1) Asset Under Management (AUM): In this structure, a wealth manager charges a percentage of the value of the asset they are managing. The range is between 0.5% to 2% annually.
2) Flat Fee: Wealth managers may charge on the basis of the complexities involved in managing the assets. This is a flat fee or fixed fee.
3) Hourly Fee: Wealth managers charge on an hourly basis for individuals who are looking for guidance on a specific issue rather than comprehensive wealth management.
4) Commission-Based fee: In this structure, a manager gets his income as a commission on selling financial products. However, there is a chance that these managers might sell a range of financial products that generate more commission for them instead of something that helps you achieve your financial goals. It’s better to work with a fee-based manager rather than with a commission-based manager.
Conclusion
Whether you are a young and enthusiastic professional looking for a wealthy future or an experienced leader looking for a secure and peaceful retirement, wealth management can help you achieve all your goals. It is more than just investing, it’s about creating an effective financial plan that addresses all the aspects of human life from investment growth to retirement planning, tax planning to estate planning. A wealth management plan is essential to achieving your financial goals and securing your future.
