The wealth management industry currently has assets under management (AUM) above $100 trillion. That number is estimated to reach $145 trillion by 2025. More and more high net worth Individuals (HNIs) — people with investible assets over $1 million — are trusting their financial planning to professionals. But is it worth paying a wealth manager?
Wealth management is an advisory service that goes far beyond investment advice. Wealth managers generally take a holistic approach, meaning they will thoroughly evaluate their client’s assets, liabilities, and financial goals to provide everything from estate planning to tax minimization and wealth transition.
But hiring a wealth advisor can feel like a big investment and because your financial data is so critical, you want to make sure you're working with a reputable wealth manager with a proven track record of success working with clients in a similar financial situation to yours.
So is wealth management worth it? To answer that question, we'll unpack what they do and why it matters.
Wealth Management: An Overview
Because there is a large variety of financial services that cover many aspects of a client’s personal finances, it can be hard to know what a wealth manager does.
What is a wealth manager? In short, they’re a trusted professional to whom you can delegate the important decisions of your financial life, so you can focus on the things that matter most to you.
Here are some of the services wealth management typically includes:
- Investment advice and management
- Estate planning
- Retirement planning
- Tax strategy
- Wills and trust advising
- Business succession planning
- Charitable giving
Even though some financial services firms only specialize in a few key services, most wealth management firms will use a multi-stage process to assess a client’s overall financial situation and offer comprehensive planning solutions tailored to each individual’s financial goals.
Is Wealth Management Worth It?
If you’re financially savvy and well-versed in current tax laws, you may think it’s a waste to pay someone else to manage your wealth. But a wealth manager does so much more than select mutual funds. One of the main benefits a wealth manager provides is time.
You’ll have the time to do the things you need to do or want to do, instead of tracking expenses and deductions. And financial professionals save you the time of constantly staying up-to-date on financial products and investment strategies.
Even though HNIs might seem like the only ones who need private wealth management, that can be a misconception. Some of the big-box brokers might have minimum investable assets, but many wealth managers with have set fees, allowing them to help clients in a variety of situations.
Are the Wealth Management Fees Worth It?
It’s a standard fee structure in the wealth management industry for fees to be based on a percentage of AUM. For example, if you have $1 million in assets and your wealth manager charges a 1% fee, you would pay $10,000 in management fees annually.
It’s important to look for wealth managers that use a fee-only approach to wealth management. That means that the only advisory fee the manager receives is a percentage of AUM. Steer clear of any wealth manager who receives compensation for recommending certain investment products. You want a wealth manager who can advise you without a conflict of interest.
You should also only consider wealth managers who don’t take any of your assets into their own personal accounts. Reputable wealth management firms will manage your funds in a third-party account that you fully own and can access at any time.
Are Wealth Management Fees Tax Deductible?
In the past, wealth management fees that exceeded 2% of your gross income could be deducted. However, as of 2017, new tax regulations made fees from financial advisors and wealth managers no longer deductible. But the law is only in effect until 2025.
There are still deductions for capital losses up to $3,000 for individuals and $1,500 for married couples filing jointly. In addition, IRA custodial fees and investment interest fees may be tax deductible. But one of the most important aspects of what a wealth manager does is to interpret current tax law and work to get you the optimal tax deductions.
The Importance of Understanding Wealth Management
There are a number of reasons to turn your financial decisions over to a professional. Maybe your assets have reached a point where you no longer have the time or the inclination to manage your investment portfolio yourself. Or maybe your taxes have gotten so complex that you’re not sure you’re minimizing your tax obligation as much as possible, leaving money on the table.
Many HNIs are concerned that they're missing out on opportunities to grow and preserve their wealth. In fact, the most common question we hear from prospective clients is "What is my financial plan missing?" Managing assets and investments and creating financial plans can be a full-time job, and there are real costs to DIY finances.
You also want to make sure that your family is able to clearly navigate your estate in the event of your disability or death. Trusts, wills, business succession plans, and estate planning can give you enormous peace of mind, knowing that your financial wishes will be carried out if the worst happens.
Wealth Managers Are Worth It
Wealth managers offer comprehensive and proactive solutions for individuals who are struggling to manage their assets and plan for future wealth transitions. In many cases, the time and money a wealth manager can save you is worth the fees you pay them.
If you’ve been postponing key retirement or estate planning tasks, schedule a discovery session now to see how a wealth manager can help.
