When you’re looking for a professional to help manage your finances, the terms financial advisor and wealth manager might seem interchangeable. But when you take a step back and think deeply about the role you need that professional to play — and the value they offer — you start to see important differences in the approach, services, and philosophy between financial advisors and wealth managers.
Your financial assets aren’t something that exist outside of your “real life.” They’re a means to achieving the life you want. That’s why you need a partner who understands the life you are trying to build and looks at every financial detail to help you get there.
Financial advisors offer some of these services, but simply put, wealth managers are empowered to operate on a higher level. Wealth managers offer a broader scope of services, a more personalized approach, and an uncompromised commitment to protecting your best interests — all of which makes a major difference when trying to maximize the value of your income and assets.
What Does a Wealth Manager Do?
Wealth managers are proactive financial professionals who thrive on handling any level of complexity. Wealth managers take a comprehensive approach to their work with clients. This isn’t just a comprehensive look at your financial picture (although that’s important) — it’s considering those details in the context of your most important goals and needs, and always looking for ways to help you live your best life.
Creating a financial plan and providing investment management is part of this process, but wealth managers also consider other major intersections between life and money, including charitable giving, education planning, tax planning, insurance reviews, and estate planning.
With full insight into your personal goals, values, and complete financial picture, wealth managers constantly look for opportunities to help you build wealth and make the most of it. That might mean suggesting better investment strategies, analyzing different ways to reduce taxes, putting together a strong estate plan, or flagging potential issues and challenges before they arise.
TL;DR: A wealth manager is a dedicated advocate for you. You can be sure you have someone focused on developing the right plans for your needs, then finding the best solutions to implement that plan.
What Does a Financial Advisor Do?
You may assume that financial advisors cover all these bases, but that’s often not the case. Even if an advisor offers additional services beyond investment management — such as tax planning or advice on charitable giving — they’re likely outsourcing that work to someone else with little visibility. You won’t have a dedicated advocate in charge of all those different pieces of your plan, meaning they might not all be working in harmony.
Lacking this comprehensive approach and sense of responsibility over all aspects of your wealth, financial advisors tend to be reactive. They may wait for you to bring up potential investment ideas, tell them about any major life changes, or ask about additional services before working them into your financial plan (or finding a third party to help).
Above all, financial advisors tend to be asset gatherers — looking to bring as much of your money under their management as possible, and not necessarily because it’s best for you. They’re not going to spend much time (if any) looking at any assets or financial objectives that fall outside of their control.
Case Study: Handling Equity Compensation
What does an asset gathering approach look like compared to a wealth manager who acts as your lifetime financial advocate?
Say you are a professional who receives a large equity compensation award one year. A financial advisor interested in gathering assets might suggest you immediately liquidate those company shares and invest the proceeds in one of the investment portfolios they manage for you. Maybe that’s the best approach, but maybe not.
A wealth manager, on the other hand, will look carefully at the tax implications of liquidating that equity award in one year — running detailed tax projections to game out different scenarios. They’ll also know about your other priorities, such as short-term cash needs and charitable giving. In the end, they might suggest a more sophisticated strategy, like selling some company shares now, offsetting taxes through tax-loss harvesting, and gifting to a donor-advised fund.
The key difference is that the wealth manager is trying to maximize the long-term value of your equity award, even if they’re not managing the proceeds.
Do I Need a Wealth Manager or a Financial Advisor?
The more assets you have, the more complex your financial life becomes and the more value you can get from a wealth manager. Financial complexity can take many forms, but here are a few situations when you might benefit from working with a wealth manager:
- You have a large estate and need to develop plans to reduce your estate tax burden.
- You’re a business owner or a professional with equity compensation who needs advice on maximizing wealth through tax-efficient strategies.
- Your financial picture has changed due to sudden wealth or a major life transition, such as an inheritance or divorce settlement, and you need a comprehensive approach to the myriad decisions that come with a major windfall or transition.
- You’re tired of having to nudge your advisor to think bigger or look ahead to what comes next, and you appreciate the power of delegating to a proactive partner.
It’s in the name: An advisor is there to give advice; a manager proactively takes on more with ease. Many of our new clients come to us feeling that they outgrew basic financial advice. It may have served them well early on, but there’s no shame in adjusting to a better fit.
How Much Does Wealth Management Cost?
You might think that the additional services and personalized approach mean that wealth managers are more expensive than financial advisors, but in most cases, they are not.
Financial advisors and wealth managers have similar fee structures, typically charging an annual fee based on the percentage of your assets that they manage. So even though you’re paying the same percentage, you typically receive more dedicated attention and additional services when working with a wealth manager.
In some cases, financial advisors are even more expensive when factoring in the cost of the products they recommend. About 80% of assets under management by Registered Investment Advisors (RIAs) are managed by firms that are dually registered as fiduciaries and as brokers, which means the advisor doesn’t always have to act in your best interests.
A dually registered advisor can function as a fiduciary when developing a financial plan for you, but then act as a broker when it comes time to implement that plan—often choosing investments from a “preferred list” of providers who share a cut of the revenues with the advisors selling the fund. In those cases, you’re paying the advisor a fee for their financial planning, but also paying higher investment fees.
This is just one of many pitfalls you can encounter when looking for a financial partner. Someone with the title of financial advisor and financial planner sounds like someone who can help you achieve all your important goals. But if you want someone who takes a comprehensive approach to managing your financial life and proactively builds personalized strategies for your goals, it may be time to look for a wealth manager. You’ve earned it.