Bauer Wealth Blog

What is Wealth Management? (an introduction guide)

Dec 6, 2019 3:51:00 PM / by Stephen Heitzmann

Wealth management is a clear-cut term with a definition that is unique from financial advising and private banking, but often confused with both. Even professionals that work in the field misinterpret the definitions or use them interchangeably, and that may be because they do have many similarities.  Furthermore, wealth managers are different than both accountants and financial advisors and only provide services to 1-3% of the United States population.

In an attempt to clear up the ambiguity around wealth management and find out what makes it distinctive from other financial services, the goal of this guide is to clarify the definition of wealth management, who needs it, and why it is important.

What is Wealth Management?

Wealth management is a consultative service provided only to high net-worth individuals that aids in managing investments and other financial services. It is more than just investment advice, however, as it essentially involves all areas of a client’s financial life. The goal of a wealth management firm is to devise a full financial plan for an individual or family to maximize their wealth and keep it protected long-term.

Wealth management advisors utilize all services, processes, and products that tailor to the client’s financial goals. Being considered a more holistic approach for affluent clients, wealth management integrates various pieces of advice, products, and services from outside professionals in order to achieve the client’s present and future needs.

Many wealth management firms offer eligible clients two options for their services:

  • The Collaborative Approach –a team of advisors or an individual who uses Certified Financial Planning principals to plan and manage investments in coordination with the client’s family or other advising firms. This is a unified approach to wealth management that utilizes, grows, and protects a person’s wealth. This approach may have more components, but is preferred by some clients because their plans can sometimes be more customized to them.
  • Single Office Approach – a firm located in one office with a staff that covers all areas of need such as tax planning, estate planning, investment management and more. This is the type of approach that most Registered Investments Advisory (RIA) firms use. This type of wealth management approach can be easier to follow and is sometimes preferred by more conservative clients.

Wealth Management vs. Asset Management

Asset management, true to its name, is the management of an investor’s assets, or all of their financial holdings. An asset manager determines asset allocation and the best type of investments for their clients such stocks, bonds, and mutual funds.

While wealth management has a broader view on a client’s financial life and focuses more on long-term protection, asset management focuses solely on investments and growing the investor’s money. While historically asset management compensation has been commission-based, a wealth manager is typically paid a percentage of the assets they are managing. This allows a wealth manager to remain objective when picking investments for a portfolio, rather than carrying a potential conflict of interest by requiring a recurring sales commission. 

Wealth management is customarily preferred by client’s nearing retirement so they can be assisted in the future by one firm for all of their financial needs.

What is a Wealth Management Advisor?

A wealth manager, or wealth management advisor, is a type of financial advisor that uses numerous types of financial disciplines as possible to manage a client’s finances. Such disciplines may include estate planning, tax services, accounting, retirement planning, and investment advice. A wealth manager is most appropriate for wealthy individuals who have diverse needs.

Whether they work for a small-scale or large firm, wealth managers typically use one set fee to charge their clients for their services. Some firms use an entire wealth management team to assist a client, while others assign one wealth manager to each client. Although different from a standard financial advisor, some wealth management businesses will function under different titles such as financial consultant or advisor in order to service more clients.

Strategies of a Wealth Manager

The goal of a wealth manager is to service their clients for the rest of their lifetime. To serve their clients, wealth managers start by forming a plan that will increase a client’s wealth based on goals and the level of risk the client is comfortable with. The client and manager will meet regularly with clients after the plan has been developed. During their meetings, they may review or update goals, re-evaluate the client’s financial portfolio, or discuss any additional services that may be beneficial to them.

It is not uncommon for a wealth manager to use the expertise of outside financial experts to service their clients, such as attorneys, accountants, real estate agents, sub-advisors, and estate planning experts. 


Wealth Manager Qualifications

Although not necessarily always a requirement, most wealth managers have a college degree in finance, business, accounting, mathematics, or economics. Many wealth managers have master’s degrees, law degrees, or other correlated certifications. A wealth manager will at least typically study to be a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC) or Certified Private Wealth Advisor (CPWA) and be registered through the Financial Industry Regulatory Authority (FINRA) by passing the appropriate Series exams.

The Difference between Wealth Managers and Financial Advisors

What Is a Financial Advisor?

Financial advisors, like wealth managers, are experts who offer a wide range of financial services to clients. Financial advisors typically aid in investment and financial planning, but will typically specialize in one type of service- such as investment management for nurses and doctors. Advisors may also limit the type of clients they work with. For example, some types of financial advisors only work with nonprofit organizations.

Although many of the similarities overlap, there are four major differences between a wealth manager and a financial advisor:

  1. Investment Consulting Spectrum – Wealth managers will normally offer a wider range of investment options and have access to non-traditional deals like Private Equity. There are endless amounts of companies that pitch investment products every day. A well-trained wealth manager can provide a large list of reliable options to choose from. Financial experts can offer some help in this category, but not to the extent that a wealth manager can.
  2. Level of Planning – Wealth management firms typically offer far more advanced plans to clients than a financial advisor can, and for a longer period of time. Some services that wealth managers provide that financial advisors do not include:
  • Wealth enhancement: maximizing growth and alleviate tax stress by dealing with cash-flow and liquidity issues in a strategic manner.
  • Wealth transfer: developing a plan to pass wealth on to a client’s beneficiaries in a way where they get to keep all or most of the inheritance with minimal taxes and fees.
  • Wealth protection: extra savings protection for clients who may be subject to a number of liabilities.
  • Charity Donations: plans are formulated so that money is donating to a cause, but the client still receives tax advantages.
  1. Client’s Financial Situation – Since financial advisors assist with a narrower range of general lifestyle planning options, they do not require their clients to be as wealthy as wealth managers require their clients to be. Wealth managers only work with the highest net-worth individuals who have more of a variety of needs.
  2. Relationship Management – An experienced wealth manager will go the extra mile to develop a plan with financial goals that are important to the client. It is not to say that a financial advisor would not, but a wealth manager uses more resources and strides to provide longer-term services than a financial advisor. Since wealth investors must use more creativity to develop the perfect plan for their client, it is important that the wealth manager and client have similar views and also have good chemistry with one another.  

Who Needs Wealth Management?

Wealth management firms not only just advise high net-worth clients, but they also typically have steep investment minimums. The minimum investment level typically ranges from $100,000-$2 million. While Fidelity Wealth Services, Vanguard and Charles Schwab offer wealth management services, the bulk of wealth management occurs through Registered Investment Advisory firms or RIAs. 

Wealth managers are suitable for clients who are interested in full-service financial advice and need a broad range of services to get them where they want to be financially.  They generally help with preparing an income or retirement plan, maximizing social security, preparing estate documents, and providing tax-reducing strategies.

What is the Importance of Wealth Management and Financial Planning?

Financial planning helps a person distinguish their short and long-term financial goals by creating a balanced plan. Wealth management typically assists in maintaining wealth long-term. All types of financial planning are geared towards creating a comfortable financial future. Wealth planning aids clients in the right direction to meet their financial objectives.

Digging deeper into the meaning of “meeting financial goals,” here are some more specific reasons why wealth management is indispensable to a qualifying client:

  • Wealth management may help with wealth transfer to relatives. Estate planning is important for high net-worth individuals so their money is distributed according to the client’s wishes.
  • Wealth management is completely based on client’s goals. Wealth planners have one priority: to create the best portfolio possible for their clients by meeting with them, updating goals, and aiding them in other types of additional services.
  • What makes wealth management unique is that it provides all types of investment options, financial advice, and all other aspects of a client’s financial life.
  • Working with a wealth management firm helps a client to maintain their current lifestyle. Wealth management clients should have a clear understanding of what is required of them to maintain their current lifestyle, such as their required annual income needed to manage their material assets. 
  • Having sufficient liquid wealth available may help to overcome an unexpected emergency such as hospital bills.


How to get started with a Wealth Manager

This part should be pretty simple since you're already visiting Bauer Wealth Management. We have experienced wealth managers ready to answer your questions. If you decide to look for a wealth manager elsewhere, remember to always ask if they are an independent RIA. This will help ensure you're working with someone who has your best interests in mind. 

Check out our fiduciary oath to see why an independent RIA is a better option for your personal interests Whenever you're ready to start talking about wealth management options, set up a free call/meeting here.

Topics: Wealth Management

Stephen Heitzmann

Written by Stephen Heitzmann

Stephen Heitzmann is the CEO of Bauer Wealth Management, a Wealth Management Firm, based in Colorado Springs, CO. Bauer Wealth Management is a Registered Investment Advisor (CRD#: 152977/SEC#: 801-71090) with the Securities and Exchange Commission. This article does not represent an investment recommendation or endorsement of any kind. Please consult with your advisor regarding your specific situation. Investing in securities does involve risk of loss that clients should be prepared to bear. The risks can range from failing to keep pace with inflation to losing some or all of the money you invest.