Wealth management broadly refers to services that help you protect and grow your wealth. This guide will take you through some of the finer details of what wealth management entails.
Charlotte Ransom, CEO of Netwealth, says: “Wealth management takes the burden off individuals of having to manage their wealth themselves. It gives financial advice that’s relevant to the audience.”
Through methods of consultation and by assessing specific situations, wealth managers can create a tailored and personalised strategy using various financial products and services.
Since most of the time the advisor needs to meet the complex needs of a client, wealth managers need to be prepared on a wide range of approaches, such as investment advice, estate planning, accounting, retirement and even tax services.
What is wealth management?
Wealth management is an investment advisory service whereby the adviser creates bespoke strategies to protect and enhance a client’s wealth and achieve whatever other goals they may have.
Different types of wealth managers target different levels of wealth. For people with greater levels of wealth, typically, the offering will be slightly broader.
“Particularly in the underlying asset mix which is supplied to them,” says Ransom. “It might include more in the way of private equity, direct investments, or lending.“
At a slightly lower wealth level, the emphasis is more typically on classic asset management. A wealth manager might use equities and fixed income as the building blocks, and then add in commodities or access to real estate.
What do wealth managers do?
Clients give a wealth manager their assets to manage, and the wealth manager then conducts research and analysis to invest and grow those assets.
Camilla Stowell, managing director at Coutts, delineated the process. Wealth managers start by researching what the client wants to achieve – passing wealth to the next generation, or investing in their passions, perhaps.
Wealth managers then think about how the wealth is going to be structured. “This could be as straightforward as doing your ISAs. No matter how wealthy you are, why wouldn’t you do your ISAs every year?” Stowell explains.
“We then consider clients’ cash flow requirements,” Stowell continues. “Once we know how much it costs for them to live their lives, we establish the capital required for them to generate the cash flow.” A time frame to achieve a client’s aims is also established, as well as the level of risk that they are willing to take.
The next step is to deploy the capital into the asset classes and investment solutions. A wealth manager will have a team dedicated to analyzing the market in order to maximise returns.
For example, if there is a recession, a wealth manager might reduce your equity position and put more of your money into safer bonds. And during the recovery, they might switch you back so you can make better returns.
How much money do you need to make having a wealth manager worthwhile?
Wealth managers are split into two camps: those who manage high-net-worth (HNW) clients, and ultra-high net worth (UHNW) clients. A high-net-worth individual is generally considered to be somebody with around £1 million in liquid financial assets.
However, plenty of wealth managers also deliver services to the mass affluent, which is generally anyone with a net worth between £100,000 and £1 million.
Ransom argued that anyone who has excess cash is likely to benefit from wealth management. “At the stage that people have enough money to do more than allocate to an ISA every year, pay down the mortgage, save into a pension… from that point onwards, wealth management can be very helpful,” she says.
What is the difference between a wealth manager and a financial adviser?
Wealth managers are financial advisers who work with HNW and UHNW clients. So, generally, you should choose a wealth manager if you have a high net worth.
You should also go for a wealth manager if you want more comprehensive management of your finances. The range of services that wealth managers offer is generally broader than those of financial advisers.
Another major difference is that a financial planner will look across the market at different investment providers and then help their client make a decision. Wealth managers, however, recommend their own wealth management services.
“Wealth managers have centralised their investment management capabilities and run multi-asset class portfolios – clients come to us because our allocation skill sets deliver what you need,” Stowell explains.
What are wealth managers’ fees like?
According to the Financial Conduct Authority (FCA), the average wealth manager fee for an active fund is one per cent of assets under management per year (before admin and trading costs). This is only an average, however, and there is a huge variety.
“For a traditional discretionary wealth management service that includes paid-for annual advice, you’re very unlikely to pay less than 1.5 per cent. And it can go up to as much as 3 per cent per annum,” says Ransom.
“It’s really important for clients to understand what that actually contains,” she continues. There is a big difference between what a wealth manager charges, and what it actually costs, because of additional charges such as VAT, custody and commissions. Overall, Ransom cites between 1.5 and 3 per cent as a normal range.
What is the business structure of a wealth management firm?
Generally, there are three overarching roles in wealth management. Firstly, the investment managers, who manage and monitor portfolio performance. Then there are relationship managers (or client advisory teams), who proactively talk to clients and administer financial advice. Finally, there is a client service team, who manages the operational guts of the business.
Every wealth management firm is different – some are small-scale businesses, whilst others are part of a larger firm or bank. A client could be designated one wealth manager with whom they forge a long-term relationship. Alternatively, they could have access to the pooled expertise of a wealth management team.
What makes a good wealth manager?
For Ransom, clarity is key. Wealth managers must clearly and transparently represent the service they provide. This includes the way in which they manage money and the total cost of the service that they provide.
“They should have great technology that gives their clients a high level of transparency in terms of how their portfolios are performing and why they’re performing the way they are,” she adds. “It should also allow the clients to make changes to their decisions about, for example, risk levels.“
“The ability to listen,” is Stowell’s response. “Also the ability to know where subject matter expertise sits around you and how to draw that together for the benefit of the client.“
She also believes that it is a wealth manager’s duty to challenge clients constructively. “That’s what you’re there to do. To make sure that your clients get an objective viewpoint on something they need help with.“
Where can I find a wealth manager?
The Spear’s 500 is a good place to start. The indispensable guide to top private client advisers, wealth managers, lawyers and service providers to high-net-worth individuals (HNWs), at spears500.com.
The website allows users to search and filter Spear’s database for various attributes, making it easier than ever to find the right private client adviser for their specific requirements.