Looking for the right advisor for you? Datalign Advisory makes finding a financial advisor specific to your needs easier than ever.
The money management field comes with many terms which can be hard to keep track of. Understanding the subtle yet fundamental variations makes a world of difference in how you approach handling your wealth. Take, for example, the contrast between a wealth manager and a financial advisor. On the surface, the words may seem indistinguishable, but there are several critical differences. In this guide, we discuss the distinctions between wealth managers and financial advisors.
What is a Wealth Manager?
A wealth manager is a form of financial advisor, but these professionals tailor their expertise to high net worth clients. Oftentimes firms require a net worth of over $1 million or more just to open an account. Like a financial advisor, a wealth manager provides a bundle of different services like asset management, investment management, retirement planning, estate planning,etc to help you get the most from your money.
Requirements to be a Wealth Manager
Being a wealth manager doesn’t require any specific certifications, though most managers are usually CFA or CFP® certified. Like any other profession, some wealth managers have more experience and are more qualified than others. Don’t hesitate to interview any potential manager you’re looking into to get a better idea of their certifications and experience and whether or not they’re the right wealth manager for you. You can also use services like the CFP Board verification tool or BrokerCheck one to see a wealth manager’s or any financial advisor’s certifications and background. We recommend that consumers seek financial advisors, including wealth managers, who are registered fiduciaries.
Wealth Manager Clients
Wealth managers typically only work with high net worth clients, but in recent years certain firms have made it possible to open accounts despite not being officially classified as a high net worth individual (HNWI.) The SEC defines an HNWI as someone with a net worth of over $750,000. Some firms now have account minimums of $250,000 while others may be even as high as $10 million.
Wealth Manager Services
A wealth manager provides a host of different services including estate planning, asset management, retirement planning, investment management, financial planning, tax services and more. They do not help with smaller services like budgeting or cash flow planning.
Wealth Manager Fees and Cost
How you pay your wealth manager varies. The most common method is paying a percentage of however much of your wealth he or she is managing. For clients with under $1 million under management that number typically hovers around 1%. Clients with over $10 million may pay around 0.7%. Some companies may just charge fixed annual fees ranging anywhere from $10k to $60k depending on the size of your account. Although not as common, some managers may also work for an hourly rate.
What is a Financial Advisor?
The term financial advisor can mean several different things depending on the type of advisor you are looking for. While individual financial advisors can handle multiple aspects of financial planning, it may not always be the case. This differs from a wealth manager in that wealth managers will usually always offer several services under one roof to ensure you’re working with the same person to handle all aspects of your money.
Requirements to be a Financial Advisor
Given the broad nature of what a financial advisor is, the range of different certifications is also broad. A CPA licensed financial advisor might help with taxes while a CLU certified advisor specializes in estate planning, risk management, and life insurance. The most common certification you will find for a financial planner is a CFP® (certified financial planner). Other certifications you can come across are a ChFC (chartered financial counselor), CFA (chartered financial analyst) and FRM (financial risk manager).
One important requirement which does not come in the form of official certification is ensuring your advisor or wealth manager are fiduciaries. Fiduciaries are registered with the SEC and are compelled by law to always have your financial best interest in mind.
Financial Advisor Services
As we’ve alluded to before, the scope of what a financial advisor can offer the client is large. What services you need will be specific to your situation. Some services we haven’t mentioned thus far include money coaches (advisors that help analyze the money you have and help you better spend and budget it.) There are also credit counselors that help people overcome large amounts of debt. Financial advisors can help with planning for a divorce or small business development as well.
Financial Advisor Fees and Cost
Paying a financial advisor is similar to paying a wealth management advisor. Some have a commission, where they take a percentage of however much you’ve invested through them. These fees usually range anywhere from 3-6%, depending on the amount of money being managed. There are also annual retainers typically ranging anywhere from $2,000 to $11,000, flat fees (~$1,000 - $3,000) and hourly rates (~$120-$300.)
Wealth Manager vs. Financial Advisor: Who Should You Pick?
To summarize, choosing a financial advisor or a wealth manager comes down to your financial situation. High networth individuals should consider a wealth manager who is more familiar with dealing with high levels of wealth.
Work with a Wealth Manager If…
Here are some questions you may want to ask yourself if you’re contemplating hiring a wealth manager.
- Do you have enough money to open an account?: While the SEC classifies this as someone with a net worth of over $750,000, some firms allow account minimums of around $250,000.
- Do you not have the acumen to comfortably manage your own wealth?: Having a high enough net worth to hire a wealth manager doesn’t automatically mean the individual knows how to effectively do it alone. And that’s perfectly okay. Managing one’s net worth can be a daunting idea for someone without professional training in that realm.
- Do you want one person to handle all aspects of your wealth?: Wealth managers deal with everything in terms of an individual’s life wealth as opposed to one or two specific needs. Financial advisors can handle more focused services without including the others.
- Do you not have time to manage your wealth?: Simply put, many people don’t have the time to manage their money but don’t want to just passively invest in ETFs. A wealth manager can help handle the aspects of financial wealth management that you don’t have time for.
Work with a Financial Advisor If…
If the questions below adhere more to your needs than the ones above, a financial advisor may be right for you.
- Do you not have a high enough net worth for a wealth manager?: If you do not reach certain account minimums to open a wealth management account but still wish to have guidance in managing your money, a financial advisor is a great option.
- Do you only desire guidance in one aspect of managing your money?: Financial advisors come in all shapes and sizes, all meant to help you tackle specific issues. For example, if you only desire help with taxes, and not investment management, certain financial advisors can easily help with just that.
- Do you need a gameplan on how to use your money effectively?: Financial advisors are trained to help you set long-term goals on how to get the most out of your money in light of your circumstances, objectives or ambitions.
- Do you not have time to handle your own money?: Not having time to worry about money isn’t just reserved for high net worth individuals. Everyone’s busy. If you don’t want to deal with some of the things a financial advisor can help you with, that’s why they’re there.
Related content: SoFi Wealth Review