Wealth management is the coordinated management of multiple areas of wealth, generally for a household or family unit.
It often includes oversight of cash flow, risk management, investment management, taxation, retirement planning and estate planning.
Wealth management can be performed for an individual or household and is commonly seen among high net worth families, people with complex financial situations, business owners and executives.
Wealth management generally involves a team of professionals, each with expertise in their own field of practice. A total wealth management team could involve a certified financial planner, a certified public accountant (CPA), an estate planning attorney or business attorney, an insurance agent and an investment advisor.
Each might work for a different firm or, in some circumstances, work together in a team office. Each would charge separate fees for services.
Full disclosure and information exchange between all parties is essential for true wealth management. It would not be uncommon for one professional on the team to be the lead. Often, this falls to the individual in the financial planning role.
Most of the team will be working at a fiduciary standard of care, although some members (in particular insurance and investment agents) might be held to the lesser suitability standard.
Wealth managers work collaboratively to develop a unique approach to a particular financial scenario, question or concern. Input and dialogue is encouraged between all parties.
Wealth management relies on the principle that change in one area of an individual’s finances are likely to have an effect on other areas.
For example, a change to investment approach from growth investments to dividend-paying investments is likely to cause changes in taxation. The sale of a closely held business will cause tax changes but also affect estate planning.
True wealth management evaluates each area as a change is considered and monitors things after the financial change. All of the parties are likely to meet several times a year to provide updates to the individual or family.
Some families employ wealth managers on a full-time basis, known as a “family office.”
Additional individuals may become part of the wealth management team as circumstances dictate. This could include potential charitable benefactors, medical personnel, even clergy.
A lesser form of wealth management involves a lead financial planner who engages outside professionals on an as-needed basis.
Here, the planner will be expected to have reasonable experience in the various financial areas but call on outside professionals when questions are beyond the scope of the planner’s education, training or experience.
While not wealth management in the truest sense, this form of oversight does provide a measure of assistance to individuals or families who could not otherwise afford it or who don’t truly need a full financial team.
Wealth management is sometimes used as a marketing word.
For example, an insurance or investment salesperson might call themselves a wealth manager when in reality the only area that they focus on is investing or risk management.
Unfortunately, this can leave the impression that a family’s total financial picture is known, when in reality only a small portion is under management.
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