Wealth management is an investment advisory service offered to high-net-worth individuals to grow and protect asset values. Wealth management firms and private wealth managers work with affluent individuals to create a blueprint to grow their wealth and achieve specific financial goals. These professionals collaborate with other experts, including accountants, lawyers, and insurance providers, to offer a holistic service to clients and satisfy their financial needs.
Wealth managers offer several services to investors, including investment management. This involves customizing plans to manage and grow clients’ assets. Wealth managers assess an investor’s financial situation, particularly their risk profile and investment goals, and then develop a plan to expand their portfolio and protect their capital from losses.
Wealth managers also offer financial planning services, which involve devising spending and investment goals for clients. This is an important foundation for retirement planning, saving for a college education, or planning for important life events, such as weddings and starting a family.
Additionally, wealth managers offer tax advisory services to minimize investors’ tax liabilities. Those with multiple streams of income and businesses are advised to take advantage of tax breaks and structure their finances in a way that minimizes tax obligations. This service helps in long-term wealth preservation, and is also a significant consideration for retirement planning, charitable giving, and passing on wealth to beneficiaries.
Estate planning is another service provided by wealth managers, and involves making decisions on how a client’s wealth will be managed after their passing. Wealth managers assist investors in setting up wills and trusts to ensure assets will be distributed as desired after the client’s death.
Wealth management firms and private wealth managers employ several strategies to meet their clients’ financial needs. Goal setting is an imperative and popular wealth management philosophy that involves defining short- and long-term goals. Wealth managers assess clients’ finances and guide them in developing specific, measurable, achievable, realistic, and time-bound (SMART) objectives.
Another popular wealth management strategy is diversification. This involves investing in multiple vehicles or asset classes to minimize the risk of substantial losses in case one asset type fails to perform as expected. Wealth managers advise investors on how to subdivide their wealth into various financial vehicles, including real estate, stocks, and bonds, and actively explore new investment opportunities for their clients.
Wealth managers also implement portfolio rebalancing in case one or more asset classes experience significant changes in value. This strategy involves aligning a portfolio’s asset allocation to assume the initial allocation in line with a client’s risk-reward profile. For instance, if a client’s initial asset allocation specifies stocks and bonds in a 50-50 ratio, and stock values rise significantly, wealth managers advise investors to sell some of the stocks and buy more bonds to return the portfolio to the initial 50-50 allocation.
Besides, wealth managers and wealth management firms can suggest insurance plans to protect and grow investors’ wealth. This approach protects individuals and businesses from unforeseen events and costly obligations, such as lawsuits and medical bills, that can deplete assets.
Finally, wealth managers may recommend the tax-loss harvesting strategy to investors with diversified portfolios. This approach involves selling an underperforming asset or security at a loss to minimize the capital gains taxes on another profitable asset. For example, a client can decide to sell an underperforming stock at a loss to offset the capital gains tax on stocks they wish to liquidate that show a profit. This way they have less tax liability, and wealth managers can then guide them on how they can replace the underperforming asset with a reasonably similar investment to maintain their portfolios.
It is important to choose wealth managers and wealth management firms with the right mix of expertise and experience to grow and protect assets. Investors should vet wealth managers’ reputations, investment philosophies, working history, and fees before choosing a professional to move forward with. Clients should choose wealth managers or firms with positive reviews, who have assisted clients with similar needs or in similar circumstances, who operate with investment strategies that they are familiar and comfortable with, and who charge reasonable advisory fees for their services.
