When managing your finances, seeking a professional can be a wise decision. However, the terminology in the financial industry can be confusing. People often use wealth manager and financial advisor interchangeably. In this blog, we explore the differences between a wealth manager and a financial advisor so you can decide which professional may be right for you.
What is a financial advisor?
A financial advisor is a professional who provides financial guidance and assistance to clients. Financial advisors can have various specializations and designations. Some of these include certified financial planners (CFPs), registered investment advisors (RIAs), or personal financial specialists (PFSs). Many financial advisers do not have any designations, so make sure to ask when you’re considering one!
Financial advisors typically have a broader range of clientele compared to wealth managers. They work with individuals or families of different wealth levels and provide advice on a range of financial matters from retirement planning, savings, tax planning, investing, college funding, and estate planning.
They develop investment strategies, select suitable investment vehicles, and offer recommendations based on their client’s risk tolerance and time horizon. While some financial advisors offer comprehensive services similar to wealth managers, others may have a narrow focus or specialize in specific areas, such as investment management or retirement planning.
What is a wealth manager?
A wealth manager is a type of financial advisor who specializes in working with high-net-worth individuals or families. Their primary goal is to optimize wealth growth, preservation, and transfer across generations.
Some of the areas that wealth managers focus on include investment management, estate planning, legacy planning, tax planning, philanthropic gifting, and capital gains planning. They collaborate with clients to create personalized strategies tailored to their specific financial goals and objectives.
Is a wealth manager the same as a financial advisor?
A wealth manager is a type of financial advisor. However, wealth managers tend to only with high-net-worth clients. The two terms are sometimes used interchangeably by wealth managers and financial advisors.
Wealth manager vs. a financial advisor: key differences
There are some key differences between wealth managers and financial advisors, even though the terms are sometimes used interchangeably.
- Target clientele: The most recognizable difference between a wealth manager and a financial advisor is the type of client each works with. A wealth manager only works with high-net-worth individuals and financial advisors work with clients of varying wealth levels. High-net-worth individuals typically have a liquid net worth of $1 million to $5 million.
- Scope of services: Some wealth managers will only focus on investment management. Some financial advisors will only focus on selling insurance products. Fiduciary financial advisors will typically approach your finances more holistically.
- The complexity of financial situations: Wealth managers typically deal with clients with more complex financial situations, such as multiple income sources, intricate tax considerations, business ownership, or international investments. They have the expertise and experience to navigate these complexities and provide tailored solutions. Financial Advisors may handle a wider range of clients, including those with simpler financial situations.
- Team approach: Wealth managers often work with a team of professionals to offer a wide range of services, while financial advisors may work independently or collaborate with other professionals on an as-needed basis.
- Fee structure: Wealth managers and financial advisors may differ in their fee structures. Wealth managers often charge a fee based on a percentage of assets under management (AUM) as compensation for managing their clients’ investments. Financial advisors generally charge a fixed fee for specific financial planning services, charge as a percentage of assets, or charge fees based on an hourly rate.
Do I need a wealth manager or a financial advisor?
The type of professional you need depends on your particular circumstances. If you have substantial wealth, complex financial affairs, or require specialized services, a wealth manager may be the better choice.
If you earn below seven figures, you’ll be better suited to working with a financial advisor. Some financial advisors may also have income or net worth requirements, but others will work with you regardless of your situation.
It may be helpful to have initial consultations with professionals from both categories. This will enable you to understand their services, expertise, and how well they align with your requirements.
What net worth do I need to have to work with a wealth manager?
The minimum net worth required to work with a wealth manager can vary significantly based on several factors. These factors include the specific wealth management firm, the services you require, and the location or region in which you reside.
Some wealth managers work with people with $500,000 or more in investable assets. However, larger wealth management firms typically require a minimum of $2 to $5 million in investable assets. The wealth manager you’re interested in working with can tell you the minimum amount required.
Choosing the right financial advisor or wealth manager for you
Hiring a financial advisor or wealth manager will be one of your biggest financial decisions. You want to choose the right person for you. It’s essential to do thorough research and interview potential professionals to ensure they have the necessary qualifications, experience, and a solid reputation. Here are 8 questions to ask a financial advisor or wealth manager during your first meeting with them.
Work with a financial advisor or wealth manager in 2024
Navigating the financial world can be complex. Understanding the differences between a financial advisor and a wealth manager can empower you to choose the right professional for your specific situation. If you aren’t sure what type of professional you need for your situation, or if you still have questions about working with a financial advisor, you can contact our team at any time. If you want a comprehensive financial plan, schedule a free discovery call today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.