Wealth management: Definition, costs, and minimums

What is wealth management

Wealth management is the process of offering personal solutions to manage the financial life of a person or a family. These are investments, banking, budgeting, taxes and estates. It is to accumulate more assets, earn more revenues, minimize taxes, preserve and pass on wealth in the most effective manner.

Wealth management involves the assessment of the client’s risk profile, expected rate of return, income requirements, tax position, and estate planning. Then, the wealth manager creates a personalized plan to optimize the client’s financial picture over the long term, sometimes with the help of wealth management software development products. This is more comprehensive than just picking investments. 

Now, let’s find out what a wealth advisor is and what his role is in this process. 

Key services wealth managers provide

Wealth managers offer a suite of financial services designed to help clients in managing wealth and meet financial goals. These offerings aim to steward wealth through prudent advice and planning across all facets of personal finances.

Comprehensive financial planning

One of the most important services that wealth managers offer is financial planning. It entails evaluation of the current status of the client in terms of tangible and intangible resources, debts, income, expenditures, insurance, credit, and estate planning, among others. The manager assesses the initial position of the client and, through the simulation of various outcomes, makes estimations for the short- and long-term.

The financial plan is aimed at achieving important objectives of the client, such as the accumulation of funds for retirement, further education, major purchases, acquisition of vacation homes, charity and other objectives, which are defined during consultations with the client. Advanced analysis and probabilistic risk assessment enable one to estimate the potential of achieving those goals in the required time and with minimal risk.

For instance, the manager may give a recommendation on how to divide discretionary cash flow into various buckets such as emergency funds, debt, retirement, college, and home among others. The financial planning service encompasses both high level and detailed planning on how to handle cash flow.

Investment portfolio management

With those inputs, the manager thoroughly researches potential investments, such as stocks, bonds, mutual funds, ETFs, alternatives, and more. The manager constructs, manages, and monitors a diversified portfolio aligned with the client’s investment plan. Periodic rebalancing keeps the asset mix on target regardless of shifting market conditions.

The manager implements careful due diligence for investment selection using performance data, holdings analysis, risk metrics, tax efficiency, business expenses, and other factors. Ongoing oversight ensures continued alignment with client goals and responsive adjustments as needed.

Tax planning

Tax planning and optimization are other key areas that wealth managers focus on. This involves analyzing a client’s current and projected future income tax scenario across all sources – employment earnings, investment income, retirement plan withdrawals, social security, etc.

From there, the manager identifies opportunities to improve tax efficiency with solutions like tax-advantaged retirement accounts, strategic investment placement based on tax treatment, loss harvesting, donor-advised funds, bunching deductions, delaying income triggers, gifting appreciated assets, and more.

The tax planning service encompasses both short-term tactical solutions to reduce current-year tax liability and long-range strategic projections for best practices on withdrawals, relocations, estate planning, and more.

Additional offerings

Beyond the core services above, wealth managers also provide supplemental offerings around banking, credit management, insurance planning, trust and estate planning, bill pay, bookkeeping, philanthropic strategies, and other areas – all with the goal of fully optimizing a client’s financial life.

So, what is a wealth manager and what does a wealth manager do? In summary, wealth managers provide highly customized guidance across investments, goal planning, taxes, and overall stewardship of finances tailored specifically to each client’s situation and objectives. Their role aims to provide clarity, expertise, and responsive service at every step.

Wealth management process

The wealth management process typically involves five key steps:

Discovery

The manager meets with the client to understand their financial situation, goals, challenges and preferences in detail. This phase involves gathering paperwork, asking many questions, and running calculations to quantify the client’s finances.

Analysis

The wealth manager analyzes the quantitative and qualitative data collected. This includes assessing assets, liabilities, cash flow, insurance, investments, tax situations, estate plans, expenses, income streams, and risk tolerance. The manager identifies strengths, weaknesses, opportunities and threats related to the client’s finances.

Recommendations

Based on the analysis, the manager develops written recommendations to improve the client’s financial situation and address goals. This is a strategic, tailored wealth management plan covering the services needed, such as cash flow planning, tax planning, retirement planning, insurance reviews, college savings, estate planning, philanthropic strategies, etc. There is no one-size-fits-all approach.

Implementation

The client decides which recommendations to pursue. The manager then coordinates the details, including opening accounts, transferring assets, completing paperwork, conferring with other professionals like CPAs or attorneys, selecting investments, and enacting other facets of the wealth management plan.

Monitoring

The manager regularly reviews the plan with the client. This ensures continued progress toward goals and that the strategies adjust appropriately as the client’s situation evolves over time.

This wealth management business process aims to provide clarity, structure, and expertise so clients can make optimal financial decisions.

Costs and minimum account sizes

Wealth management services do come at a cost since highly trained professionals are spending substantial time creating customized solutions. There are a few common wealth management fee structures:

• Percent of assets under management: This is the most popular model, charging an annual fee based on the percentage of invested assets. Fees often range from 1% to 2% but could be lower for larger portfolios, like those over $3 million.
• Hourly planning fees: Some firms charge hourly rates for specific services like financial planning or tax preparation. These range from 150 to 500 per hour based on experience and credentials.
• Fixed retainer: Wealth managers may charge an ongoing monthly or quarterly retainer fee for comprehensive services, similar to a subscription. This grants the client access to advice and questions. Retainers might range from 2,000 to 25,000 per year.
• Commissions: Transactional fees are charged when wealth managers buy or sell certain investment products, such as stocks, bonds, mutual funds, load funds, annuities and insurance. This creates conflicts of interest since the manager benefits from the activity. Fee-only managers avoid this through set fees.
• Performance-based fees: Some managers charge fees based on investment returns or benchmarks rather than a flat percentage. For example, they may take 15% of annual portfolio gains above a 6% hurdle rate, which ties fees to results.

Wealth management also often has minimum investible asset requirements given the personalized level of service and time involved. Minimums frequently range from  250,000 to 1 million at traditional firms. However, newer independent firms cater to clients with as little as 50,000 or 100,000 investible assets. Meeting minimums waives service fees.

So in summary, financial wealth management costs vary but usually involve paying 1% to 2% of assets. Minimums often start around $250,000 at traditional firms but can be lower with independent RIAs. Understanding these wealth advisor costs and minimums helps clients pick the right fit.

How wealth management software helps

Technology is changing the face of wealth management in the current world. Some chores are computerized to reduce the time managers take on calculations and focus on consulting clients. This results in improvement of efficiency and reduction of costs.

Some of the uses of wealth management software include assessing the state of affairs of a client, designing plans, monitoring the implementation process, engaging other specialists, and trade/rebalancing. This gives real-time information to develop solutions that are unique to the investor’s objectives and goals.

Wealth management software is the use of technology and algorithms to automate, analyze and improve the wealth management industry. This means that advisors are able to spend more time on strategic and high value added services to their clients and at the same time bring down the cost of service delivery to clients. As technology capabilities grow, managers must embrace these innovations to remain competitive.

Conclusion

Wealth management involves the provision of personal financial services and products to meet the particular financial needs of an individual. Having a wealth manager for the task means that one gets professional advice on how best to manage his or her wealth through investments, taxes, risks, estate planning, and other aspects of personal finance.

Although it is not free, clients receive very close attention and effective and complex solutions that are unique to their circumstances and goals. BPM is revolutionizing wealth management software solutions by making them more effective, reliable and technologically advanced. A goals-based approach and being affiliated with a good wealth management company provides assurance for the management of one’s financial life.