What It Is, If You Need a Manager, and How to Find One
When determining how much help you need in creating a financial plan, it’s beneficial to know the difference between a financial advisor, investment manager and a wealth manager and what types of services they provide. While some may use these terms interchangeably, in reality, they offer very different types of services. The financial professional you choose will depend on the complexity of your financial situation.
Wealth managers can handle any level of financial complexity. They take a comprehensive approach to their work with clients because it isn’t about just looking at the big picture — it’s considering all the steps and details that go into helping clients meet their short-term and long-term goals.
Financial advisors may offer similar services to wealth managers, but the devil is in the details. Even if a financial advisor offers services around tax planning or estate planning, they may not take the same comprehensive approach a wealth manager provides.
Financial advisors often outsource that work without being fully transparent about it to the client. Your financial advisor may not be the advocate you thought they were if all the different pieces of your financial plan aren’t working in tandem.
Whereas wealth managers and financial advisors take a broader approach to financial planning, investment managers tend to focus only on investing assets. If all other aspects of your financial plan are in order but stocks, bonds, trusts, assets, risks, and returns, confound you, an investment manager can help you sort this out.
Still not sure which type of financial manager you need? See if you can relate to any of the bullets below.
As you begin your search for a wealth manager or financial advisor, you may see the term "fiduciary" quite often. It's an important distinction to look for, as the best candidates are registered fiduciaries. A gold star distinction is CEFEX or advisors who hold a certification in fiduciary excellence.
A fiduciary has a legal responsibility to make financial decisions in a client’s best interest, even if it may not be what is most financially valuable for the firm. They are charged with developing financial plans and investment strategies that align with a client’s personal goals.
A fiduciary may earn compensation by charging clients a flat fee for service or a fee based on a percentage of the client’s assets under their management. There are no outside incentives or kickbacks to influence their judgment.
Non-fiduciary financial advisors or wealth managers can earn income from other sources, like commissions on product sales, and are held to weaker industry standards.
Simply put, non-fiduciaries will offer advice or strategies that meet your needs, but they aren’t necessarily the best options available.
Here is where things get tricky: Someone may claim they follow the fiduciary standard when they are actually dually registered. When firms are registered as both fiduciaries and brokers, the lines start to blur. An advisor or manager may act as a fiduciary when conceiving your financial strategy and then act as a broker when implementing the plan.
Brokers earn money by recommending investments from a “preferred funds” list that gives brokers a cut of the revenue when their clients invest. As you may guess, this can create a conflict of interest if the broker chooses a fund that is "suitable," but not necessarily in the client’s best interest just because they get a kickback from it.
Find out if your financial advisor or wealth manager is registered as a fiduciary on the SEC’s Investment Advisor Public Disclosure (IAPD) website.
CEFEX-certified financial advisors and wealth managers are the cream of the crop. CEFEX firms are required to uphold fiduciary practices that exceed the letter of the law and must agree to annual audits to confirm their approach. The audits are more rigorous and more frequent than SEC check-ins.
There are many benefits to working with a wealth manager, the biggest being that they anticipate your needs before you even consider them, greatly reducing your stress over finances. Wealth managers will consistently monitor your finances and adjust to align with your goals.
Other benefits include:
While it’s always recommended to have a wealth manager help you with your finances, there will be specific times in your life when it's more important than others. You can read more about life scenarios and how a wealth manager can help you in each of those here. Here are some of the life scenarios when you’ll want a financial advocate on your side.
Some signs you may be ready to move on include:
Breakups aren’t easy, but if you keep the conversation professional and focus more on how you intend to move on, it should be a clean break.
Before you cut ties, there are a few steps we recommend you take before signing on with a new advisor.
As you become more successful, your finances get more complicated. Is your financial advisor growing with you or are they stuck in the past? As you evolve, a wealth manager will evolve with you and they are backed by an experienced team ready to tackle complex situations.
Here are six questions to ask your current advisor as you determine your options for moving on:
If their answers to these questions aren’t satisfactory, it’s time to look for someone new.
Now it’s time to look for a new advisor, but where do you begin? It’s important to dig deeper than a firm’s marketing materials or website. Anyone can look good on the internet if they try hard enough! You must discover whether an advisor’s promises and claims are backed by sound policies and practices.
Look into the firm’s:
Remember: Although your recent experience may leave you disappointed, don’t fall prey to taking on everything on your own. Seek a better experience guided by a professional.
Now that a few candidates have passed your initial assessments, it’s time to interview them. It’s important to follow a structured list of questions and be sure to ask each candidate the same questions to give them all a fair chance at responding.
Involve your significant other and print the same list of questions so you can individually score the candidates and compare notes. This may make the process of choosing an advisor easier.
Some questions you should ask your candidates:
The true benefit of wealth management is tying these events together under an actionable and proactive plan because nothing happens in a vacuum. You may be planning for retirement while handling a divorce or saving for your child’s education while buying a home.
As a general rule, it’s time to sign on with a wealth manager when your finances start to get more complicated and you’re no longer handling one priority at a time.
In your first meeting with your wealth manager, you’ll talk about three main goals: accumulation, preservation and distribution. Your focus on these goals will depend on your stage of life. For example, in your younger years, your focus is on accumulating assets. In your middle ages, you work to preserve and maintain those assets. When you retire and start gathering your estate plan, you’ll also determine the distribution of those assets.
Your wealth manager will help you with these three goals and all the steps in between — from gathering your financial data to monitoring and reporting on how your assets evolve according to your plan.
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This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.
Plancorp is a registered investment advisor with the Securities and Exchange Commission ("SEC") and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure and our Form CRS for additional information regarding the qualifications and business practices of Plancorp.
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