When should I start using a wealth manager?
Any minimums in terms of investable assets, net worth or other metrics will be set by individual wealth managers and their firms. That said, a minimum of $2 million to $5 million in assets is the range where it makes sense to consider the services of a wealth management firm.
They may also require different minimum levels of assets to assume management over them. Although there is no hard and fast rule for when somebody should seek wealth management, it's usually assumed you don't need wealth management until you have at least a few hundred thousand dollars in assets.
You might not need a wealth manager if you have clear goals and are confident you can create and implement strategies to protect and grow your wealth. However, a wealth manager may be a good idea if you have substantial assets, would benefit from an expert, and have questions you need help answering.
There isn't a hard-and-fast rule for how much money you “need” to get started with wealth management, but generally speaking, this is most beneficial for people with a net worth of $250,000 or more. It's also strongly recommended for business owners.
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
You need help keeping an eye on the big picture.
If you want to be hands-on with your money, a wealth manager can still provide value by keeping your strategy matched with your goals. For example, if you're an active trader but not a tax expert, a wealth manager can provide tips on potential tax savings.
In the 18 years to 2021, the average real return for a Steady Growth portfolio was 4.4% per annum. However, the rate has fallen to 3.2% per annum over the past 20 years, underlining the negative impact of inflation. The last time real wealth took a major hit was at the height of the credit crunch in 2008.
Both can offer similar services but a wealth manager typically only works with high-net-worth individuals. A financial advisor can work with you to create a financial plan and then manage your portfolio of assets to help you hit your goals.
Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.
As a general rule, I'd say that unless you're purely in a support capacity in a large private wealth management shop, you'll be tied to your desk for 30 or 40 hours a week and talking with clients, meeting with clients, or going to events for another 20 to 30 hours a week when it's all said and done.
What are the disadvantages of wealth management?
Cons of Private Wealth Management
Wealth managers typically charge a percentage of assets under management or fees for specific services. These costs can eat into your investment returns, particularly if your portfolio is actively managed and you have a high net worth.
They advise private, high-net worth individuals and affluent families on how to invest their portfolios and plan their finances to meet their financial goals, and they typically offer a range of services, including portfolio management, estate and retirement planning, and tax services.
For instance, Goldman Sachs' private wealth management division requires at least $10 million in investable assets. Its personal finance management services, meanwhile, feature a substantially lower initial investment—just $500,000 will get you in the door.
The wealthy also trust and work with financial advisors at a far greater rate. The study found that 70% of millionaires versus 37% of the general population work with a financial advisor.
According to various studies and publications, the average age of financial advisors is somewhere between 51 and 55 years, with 38% expecting to retire in the next ten years.
Many financial advisers charge based on how much money they manage on your behalf, and 1% of your total assets under management is a pretty standard fee.
Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one. If you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.
Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.
In short, the average stock market return since the S&P 500's inception in 1926 through 2018 is approximately 10-11%. When adjusted for inflation, it's closer to about 7%. [Since we're talking citations in this post: Investopedia.]
A good average number of clients per financial advisor to have is usually in the range of 50 to 150. But you may need fewer than that if you're primarily targeting high-net-worth individuals. Finding your ideal number of clients can depend largely on your goals as an advisor.
What is considered to be high net worth?
A high-net-worth individual, or HNWI, might be defined differently among certain financial institutions. But in all cases, a high-net-worth individual is someone with a large amount of wealth. Typically, a high-net-worth individual has assets of between $1 million and $5 million.
Key takeaway: It's no coincidence that most American millionaires use a financial advisor. With an experienced financial advisor on your side, you are more likely to take the strategic actions necessary to achieve your long-term goals.
These firms have minimum account requirements of between $2.5 million and $50 million. The top 5 are: 545 Group, Jones Zafari Group, The Polk Wealth Management Group, Hollenbaugh Rukeyser Safro Williams, The Erdmann Group.
Regardless, if you're not feeling fulfilled in your current advisor relationship, remember: You can always leave.
Costs: Financial advisors cost money, and not all charge you in the same way. Some charge a percentage of your total portfolio per year. Others charge you an ongoing annual fee, some charge a one-off service fee, while the investment broker pays others via commissions.
