It feels like "financial experts" are popping up everywhere these days, doesn't it? Knowing who to trust with your hard-earned money can feel a bit challenging, but you aren't alone in feeling that way. We're here to help you cut through the noise with a little education so you can make the choice that aligns with your values and your life.
What is wealth management?
Wealth management is a holistic strategy designed to empower you to cultivate and safeguard your financial health. Instead of just looking at one piece of the puzzle, it encompasses a comprehensive framework for your entire life.
This includes retirement planning, estate planning, tax planning, risk mitigation, cash flow, and investment optimization. While asset management primarily centers around your investments, wealth management considers all financial aspects. It looks at your short-term needs, long-term goals, risk tolerance, and your unique individual circumstances.
Key objectives of a wealth manager
The primary goals here are maximizing returns, minimizing taxes, and protecting your assets for the long term. Wealth managers assess your resources and develop a customized roadmap tailored to your needs. This might include recommending investments, insurance products, and retirement strategies. Most importantly, they work to ensure your wealth is managed in accordance with your personal values.
The pros of wealth management
- Tailored strategies: You get a plan built just for you.
- Expertise: Access to deep financial knowledge.
- Holistic planning: Every aspect of your money is considered.
- Peace of mind: You know a professional is looking at the big picture.
The cons of wealth management
- Barriers to entry: Some wealth managers enforce investment minimums and may charge higher fees.
- Exclusivity: Services are often only available to high-net-worth individuals (HNWIs).
- Fiduciary status: Not all wealth managers are fiduciaries.
- Time commitment: It takes time and effort to build a relationship with a wealth manager.
What is asset management?
Asset management involves overseeing a portfolio of financial instruments. This usually includes things like stocks, bonds, ETFs, and mutual funds. The main goal of an asset manager is to generate investment returns while minimizing losses. They achieve this through rebalancing, diversification, and risk management strategies to help you hit your targets.
These advisors provide personalized advice tailored to your risk tolerance and goals. They offer a diverse range of products, including mutual funds, exchange-traded funds (ETFs), real estate investment trusts (REITs), derivatives, and commodities.
It's important to note how they get paid. Asset managers typically charge a percentage of how much you invest with them. This fee model is called assets under management (AUM). Some also make money through commissions on the products they sell.
Key objectives of an asset manager
- Maximize returns
- Minimize risk
- Increase liquidity
They strive to achieve these goals by creating tailored portfolios that reflect your individual risk tolerance. They analyze market conditions and trends before selecting investments, and they proactively monitor performance to maintain optimal returns.
The pros of asset management
- Professional advice: You get expert guidance on how to invest.
- Broad access: You can tap into a wide range of investment options.
- Monitoring: They offer proactive performance tracking.
- Risk mitigation: Strategies are put in place to manage volatility.
The cons of asset management
- Cost: Fees can be high depending on the amount you invest.
- Complexity: Rebalancing and diversification require active monitoring.
- Conflicts: Commission-based products may create conflicts of interest.
The main differences between the two
Focus
Wealth management aims to assist you with expanding, safeguarding, and transferring wealth to future generations. Achieving generational wealth necessitates meticulous planning, tax management, and strategic estate planning alongside prudent investment decisions.
In contrast, asset management focuses exclusively on managing investments to optimize returns. The primary goal is to construct and uphold portfolios that align with your risk tolerance.
Ideal clients
Wealth management has traditionally served wealthy people, families, and business owners. These services often cater to individuals with investable assets surpassing a specific threshold, often in the millions of dollars.
Asset management serves a more diverse range of clients. This includes institutional investors, pension funds, and endowments, as well as individuals with moderate investment portfolios.
Investment approach
Wealth managers create personalized strategies that consider your time horizons and aspirations. They emphasize long-term growth and wealth preservation based on your unique circumstances.
Asset managers use various strategies based on preferences, like active or passive management. They conduct thorough research of market trends to achieve optimal risk-adjusted returns.
How to choose the right professional for you
There are a few key considerations to keep in mind when deciding which path is right for your roadmap.
Determine your objectives
Start by identifying what you want to accomplish. Do you aspire to accumulate wealth over the long term, or do you prioritize safeguarding your existing assets? Knowing your objectives is crucial.
Look at your investment mix
If your portfolio contains a mix of vehicles like stocks, ETFs, bonds, and REITs, it might be wise to consider a wealth manager who can handle intricate details and offer comprehensive guidance.
Decide on your degree of engagement
If you want to be involved in decision-making, wealth management is generally more collaborative. If you seek a passive approach, asset managers will manage the daily administration of your funds with minimal communication.
Do your due diligence
- Check the track record: Find professionals with experience managing assets like yours. Assess their certifications and check records with regulatory bodies like FINRA and the SEC.
- Get referrals: Ask friends or family if they've had a positive experience and what attributes they like most about their advisor.
- Review the fees: Make sure you understand how an advisor gets paid. Some charge a fixed flat fee, while others charge commissions or a percentage of assets.
- Evaluate philosophies: Ask about their investment philosophy. Do they use active or passive investing? How do they evaluate risk? Ensure their strategy aligns with your priorities.
The Facet difference
We believe that excellent financial planning shouldn't be reserved only for the ultra-wealthy. While traditional wealth management often requires high minimums and charges fees based on how much money you have, we take a different approach. At Facet, we focus on the human side of advice.
All Facet financial advisors are CFP® professionals. This means they are fiduciaries held to the highest standards in the industry. Our experts will assess every aspect of your financial life and create an ongoing roadmap that evolves with you. We don't just manage a portfolio; we help you build a life you love.
