Guide to Wealth Management

So, that’s the basic definition of what a wealth manager is. But let’s get a little bit more specific: What, exactly, does a wealth manager do?

As noted in our definition above, wealth managers offer comprehensive financial services. This typically involves services like:

Investment Management (and Risk Tolerance)

This is one of the first services that people commonly associate with financial advisors (of which wealth managers are a subset). Investment management is closely tied to risk tolerance; wealth managers will seek to understand client’s goals and appetite for portfolio volatility and shape a strategy that aligns with them.

A wealth manager is typically authorized to trade a portfolio on the client’s behalf.

Tax and Estate Planning

Common sense tax and estate planning is appropriate for everyone, regardless of their wealth. For affluent individuals, executing commonly used strategies can make a meaningful difference in the long-term financial wealth. Tax planning can be particularly useful for high-net-worth individuals who have complex financial pictures to manage.

These people can end up losing significant portions of wealth to taxes without proper financial structuring. Wealth managers can often help to structure client portfolios in ways that capitalize on tax benefits and savings.

Estate planning is related in that it involves the consideration of estate and gift taxes. It is primarily focused on the thoughtful management and distribution of an individual’s assets during their lifetime, in the event they become incapacitated, and after death. 

Risk Mitigation

Risk is the possibility of a loss, which is a decline in value. There are all sorts of risks that can be managed.  For instance, there are financial risks, such as the economic loss stemming from an accident and dealing with lost income and bills. Many risks are insurable, that is you can transfer risk to a third party for a fee. Sometimes it is financially prudent to retain risk, as the cost of insurance is much greater than the probability of economic loss.  Wealth managers can help identify these risks and create optimal insurance strategies.

There are many types of insurance, including life insurance, health insurance, property insurance (car & auto) and even long-term care insurance. Wealth managers work closely with insurance agents and their clients to make sure sufficient coverage is in place to protect personal financial wealth. Structuring certain types of insurance products appropriately can also confer tax advantages in certain circumstances.  Perhaps most importantly, appropriate use of insurance can provide peace of mind.

Retirement Planning

Nearly all affluent individuals can benefit from strategic retirement planning. Wealth managers can help to design portfolios that allow individuals to reach their retirement goals and invest in the lifestyle choices they’ll enjoy. This may involve investment management; it may simply involve advice. Sometimes, individuals who have worked hard to accumulate wealth need affirmation in spending it as they approach retirement.

Charitable Giving

Many successful individuals want to give back to the organizations and communities that have helped them achieve their personal goals. Beyond identifying charities or causes that resonate, charitable gifting can involve tax considerations and technical hurdles. Wealth managers can help to overcome some of these challenges by defining strategies that effectively distribute assets, while optimizing impact for charitable causes.

The above services are just examples of common areas wealth managers spend their time on. The key take-away here is that wealth managers have the ability to weave all of these services (and any other relevant ones) into thoughtful and comprehensive approaches to portfolio management.

A wealth manager is not simply an insurance advisor or a retirement planner or an investment consultant; rather, they are a guide to creating an artful, integrated picture.

Learn more about what a wealth manager does here.

As you consider whether it makes sense for you to pursue wealth management as a service, you’re likely considering another question, too: “How can I manage my own wealth effectively?”

As you may guess, I have a few recommendations based on more than thirty years of experience in the field. Most of these are common sense – but they’re also critically important to financial well-being.

1. Plan (and stick to it).

All successful wealth management strategies begin with a plan. The alternative to planning, as the saying goes, is planning to fail.

A plan should begin with a detailed analysis of your current financial situation and goals. Working with a wealth manager can help to crystallize your objectives. 

Remember: Investing is tricky, and even outperforming money managers may only have 55-60% of stocks in their portfolios actually do better than the benchmark. 

By clarifying your objectives and the methods by which you’ll reach them, you can confidently act in the day-to-day.

2. Live within your means.

This tip isn’t exciting, but it’s important: Don’t spend money you don’t have.

We live in a world that idolizes tangible displays of wealth: the sports car, the house in the hills, or the lavish vacation. Spending on things that bring you happiness is good – but spending outside of your means will not bring long-term happiness.

I’ve seen individuals get acclimated to high portfolio returns (such as those achieved during the previous decade) and increase their spending using those “earnings” with the expectation that their future returns will be the same. Unfortunately – as we’ve seen this year – past performance is no guarantee of future return. And spending habits tend to change more slowly than the markets, meaning that it’ll be difficult to adjust your expenses in the event of a dip.

3. Invest early and often.

In keeping with our focus on long-term strategy, here’s another future-oriented wealth management tip to follow: Invest early and often.

It’s common knowledge, but it’s still counter-intuitive: The time value of money means that a person who starts early and puts in $5,000/year between the ages of 25 and 35 (10 years; $50,000 total investment) is projected to have approximately the same amount of money at retirement as someone who invests $5,000/year between the ages of 35 and 65 (30 years; $150,000 total investment) using the exact same investment return assumptions.

While there are obviously a variety of investment strategies (a wealth manager can help you to develop an approach that works for you), arguably the most important wealth-building tip is simply to invest.

4. Invest in yourself.

The best wealth management approaches include room for you to invest in yourself.

I recommend doing so in two ways:

Knowledge

“An investment in knowledge,” said Ben Franklin, “pays the best interest.” It’s true. Don’t be afraid to spend on continuing education and skill development for yourself. 

Happiness

This is a category of self-investment that many high achievers struggle with. The goal of wealth building is not to collect material assets. It’s to build a happy life. Wealth management that doesn’t improve your happiness isn’t good wealth management.

Learn about more strategies for building wealth and managing it here.

Whether you’re working on building wealth yourself or are moving toward engaging a wealth management advisor, there are several trends that you should be aware of as you proceed.

These include:

Trend 1: Polarization of risk profiles.

Investors have tended to react to the extraordinary circumstances of this year in one of two ways:

They’ve realized they don’t have the risk appetite that their portfolio reflected.

The volatility of the market this year has led some individuals to reevaluate their risk tolerances. These people may have had high-risk, high-reward investments as a heavy percentage of their portfolio but have realized over the course of the year that their real risk tolerance is lower. They’ve responded to the new reality by diversifying to prevent future losses.

They’ve doubled down on high-risk investing.

On the other hand, some individuals (those with longer time horizons) have viewed the market volatility as an opportunity and have used this year to double-down on high-risk, high-reward investments. They’ve responded to the new reality by hoping for long-term gains.

Trend 2: Increased role of technology.

This one is really the continuation of an ongoing trend: Technology is playing an increasingly important role in the wealth management process.

Here are four ways I see technology impacting wealth management:

Artificial intelligence.

Artificial intelligence has been a buzzword for years now, but it’s increasingly playing a real role in providing wealth management insight.

For instance, Deloitte notes that, “in 2017, BlackRock announced that it would incorporate internal trade data into its existing market liquidity model, and apply machine learning techniques to more accurately calculate the cost of redemptions and gauge liquidity risk.”

Robo advisors.

Robo advisors often brand themselves as being powered by AI, but, in truth, their model is just as dependent on younger investors’ preferences for low-touch service as it is on true artificial intelligence.

As Investopedia notes, robo advisors “are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets.”

In a post-pandemic world, these options admittedly have appeal. But they simply can’t offer the tailored level of service that a human wealth manager can.

Location-independent consulting.

Fortunately, working with a robo advisor isn’t the only contact-less choice. With video conferencing now ubiquitous, human wealth management advisors have been presented with an opportunity: Location-independent consulting.

In other words, it’s possible to offer investors personalized service without requiring face-to-face meetings in the same locale. This may lead to increased advisor specialization; without locality as a primary requirement, investors will have more incentive to work with someone who specializes in their set of circumstances.

Documentation.

Lastly, technology has improved the ease with which documentation can be delivered and accessed. Increasingly, wealth management clients view reports and portfolio information from inside of secure portals. Wealth management assets are delivered online. Even compliance documents are increasingly digital.

Trend 3: Increased importance of a personal touch.

Finally, I believe that 2020 has provided a reminder of the importance of a personal touch to wealth management.

The data bears this out; people have more confidence in personal advisors. For example, a March 2020 survey by NerdWallet found that, “Given the option, 84% [of investors] would rather work with a human financial advisor to invest their money compared with 16% who would prefer to use a robo-advisor.”

This year, more than ever, has shown the importance of working with a wealth management advisor that you truly trust.

Learn more about wealth management trends to watch for here.

While it depends on your unique circumstances, in general, I believe the data clearly show that working with a wealth management advisor can be worth it.

Wealth management can improve your ability to reach personal goals.

I’ve written multiple times about the research on the returns associated with financial advisors. Since wealth management is a subset of financial advising, the same premise holds here. As noted above, though, wealth management isn’t always about increasing returns. Sometimes it is about donating to a deserving charity, helping out a relative that is struggling to pay tuition, or insuring yourself against future risk. Regardless, an advisor can help.

Wealth management can give you peace of mind.

In addition to improving your ability to reach your goals, wealth management can also help give you peace of mind. At a foundational level, wealth management may allow you to spend less time thinking about your wealth; you can designate financial activities to a trusted consultant. If you prefer to be involved in day-to-day financial strategies, a wealth manager can still increase your peace of mind by giving you an objective, informed perspective on your portfolio.

For more about the data on wealth management returns, read this piece.

If you believe wealth management services would be helpful for you, the next step is to identify the right advisor for your needs.

Here are a few different styles of wealth management services in Seattle that are worth considering.

• Small, Boutique Wealth Managers: Sapling Wealth would fit under this rubric. While we are biased, I believe that small independent wealth managers offer the best value for the clients, as they can balance personal service with financial acumen. Most firms in this category are licensed as Registered Investment Advisers, which means they are held to a fiduciary standard, the highest standard in financial services. Investment advisers must put their client’s interest above their own and follow the best course of action. 
• Financial Advisers working at Institutional Brokerage Firms: Many financial advisers reside inside of a much larger institutional platform, such as Edward Jones or Merrill Lynch. These professionals are held to a suitability standard, which is not as strict as the fiduciary standard. Therefore, as long as the financial advice for a client is based on their financial needs, objectives and specific circumstances it will pass the “suitability rule”. It is not required to be the best advice; it just can’t be bad advice. For instance, these financial advisers are often paid more to sell the brokerage firm’s proprietary financial services and products, which may not have competitive fee structures or performance profiles.   
• Investment Advisers working at Large RIAs:  Some people believe that large RIAs offer the best of both worlds – investment adviser fiduciaries and vast resources. However, the focus of these large firms can sometimes gravitate to specialized products & services; while very value added, they are generally only appropriate for the firm’s largest high net worth clients. Therefore, due to overhead considerations, the way the larger firms typically succeed is by focusing on their largest accounts. Customers that do not have assets at the same level as these ultra-high net worth families often get handed off to junior, less experienced subordinates or may just get less attention.  
• Financial Planners: Financial planners can offer a great, episodic service. This is a service (which we also offer in our suite of service) that is particularly good for do-it-yourself clients. However, for people looking for a more comprehensive, higher service solution may find this option lacking, as the advice often does not extend beyond the point-in-time financial plan.   

The options above are worth considering as you look for a wealth management advisor, but before you move forward, you’re still faced with making a decision.

Here’s a process that will help you to pick the right wealth management advisor for your needs.

1. Determine what you want.

This may seem obvious, but I’ve found that the first step toward finding a wealth management advisor is identifying what you want. If you know what your objectives are, you’ll be better equipped to identify the adviser that has the best fit for your needs.

To do this, ask yourself questions like:

• Why do I need this service?
• How much control do I want to give up?
• How will I define the success of this engagement?

2. Identify potential wealth management advisors.

Once you’ve considered your own goals in working with a wealth manager, the next step is to identify potential candidates.

It’s time to make a shortlist.

On-line searches with targeted words, such as “wealth management Seattle”, are one place to start. Another good place to start is through recommendations; you may find people in your social circles can provide recommendations to you. These referrals are especially valuable if the people they’re from are in a similar financial situation to your own. Some people also find other trusted vendors, like their accountants or lawyers, can provide recommendations.

When you have a shortlist of two or three advisors that you think might work well with you and who seem to tailor solutions to your needs, it’s time to move to the final step.

3. Ask them questions.

Now, it’s time to start taking action.

Once you have a shortlist, go ahead and schedule initial consultations with the wealth management advisors you’ve identified, and ask them a few questions.

• Are you a fiduciary?
• What is your fee structure?
• How will you measure success?

After you’ve met with them, ask yourself a couple of questions, too.

• Is the prospective wealth management advisor someone you can trust?
• Do you like them?

As you pursue a wealth management engagement, it’s important to select someone you’ll get along with well – and who provides the services you’ll need to reach your goals.

You can get more details on how to move through this process here.

If you’ve made it this far, well done! I hope the above information has been helpful as you consider your wealth management path and determine whether working with an advisor makes sense.

When you find the right fit, I believe that a trusted wealth management advisor can craft customized financial strategies to help you achieve your personal objectives.

If you’re looking for wealth management in Seattle and are ready to review your options, I’d love to hear from you.

A career spanning 30 years of financial service experience has given me a deeper understanding of the risks and rewards of investing and familiarity within a broad range of individual financial contexts.

Schedule a review of your portfolio today, and let’s take the first step toward figuring out what’s best for you. If you’re ready to grow your assets with thoughtful investment advice, we may be a good fit.