Wealth Management Explained

Wealth Management is a service that is available to affluent and ultra-high net worth individuals and families. To be a wealth manager, you need to possess skills in tax planning, wealth protection, estate planning, succession planning, and family governance. 

Along with the skills that one has to possess, wealth management also requires one to have multiple disciplines. The remuneration for possessing so many skills is higher and better than that of a financial advisor by far. 

But, what is Wealth Management? And what does wealth management deal with? These questions are addressed and discussed below. 

What is Wealth Management?

Wealth Management is a discipline that combines various financial services in order to meet the needs and wants of affluent, high-net-worth, and ultra-high net worth clients. The discipline includes wealth structuring and planning to assist in the growth, preservation, and protection of the aforementioned clients’ wealth.

Wealth Managers are responsible for the management of the clients’ wealth and can provide multiple financial products to protect, preserve or grow wealth. Each affluent client is treated differently according to their needs and wants.  As a result, a wealth manager’s goal is to understand his or her client and discover what is important to them and why.

Wealth management is a broad discipline that encompasses the following:

• Accounting and tax services,
• Legal services,
• Debt Management,
• Assets Preservation,
• Insurance Services,
• Income Protection,
• Retirement planning,
• Investment Management and planning,
• Estate planning,
• Succession planning,
• Charitable giving planning,
• Acquisitions, mergers, and company setups,
• Family governance, and
• Review of Healthcare benefits.

Wealth Managers use a consultative process to obtain information from clients to tailor a personalised strategy that uses a broad range of financial products and services. Through the strategy, wealth managers will be able to meet the needs and expectations of clients. 

Characteristics of Wealth Management

• Wealth Management is a solution that combines a number of financial services to address the needs and wants of high net worth, ultra-high net worth, and affluent clients.
• This service is appropriate for individuals and families with high net worth.
• Wealth managers charge a low percentage for their services.
• Has to do with assets, trusts, and more.
• Clients and wealth managers discuss the clients’ needs and desires in order for the wealth manager to devise the best solution to grow, preserve, and protect the clients’ wealth.
• Wealth managers determine the best course of action to take in order to grow their clients’ money as well as the best strategies for preserving wealth.

How does Wealth Management Work?

Wealth management is a service provided by wealth management firms or individual wealth managers. Wealth Management services are available from financial institutions or divisions of financial institutions such as Investec, Robert Walter’s, Old Mutual, and many others.

Wealth management firms provide their services in exchange for a percentage of the assets under management. Because the competition for ultra-high net worth clients is fierce, the spread charged is low. Typically, wealth management individuals or firms charge a percentage of total assets under management that is less than 1.25 percent.

Although the percentage is low as a number, the returns are high because wealth managers work with millionaires and billionaires. A 0.50 percent fee on a R100,000,000.00 portfolio can earn a wealth manager R500,000.00 over the course of a year. The more clients a wealth manager has, the more commissions they will earn. 

Wealth Management Strategy

Financial advisors use a variety of investment strategies to help their clients increase their wealth, ranging from value investing to growth investing. Wealth managers have slightly different approaches because they deal with such large accounts. Wealth managers may provide their clients with access to a broader range of investments, like hedge funds and private equity offerings, than regular financial advisors. 

Wealth managers also tend to employ more holistic strategies, which means that any financial plan developed by a wealth manager should take into account all aspects of a wealthy individual’s life, such as estate and tax planning, rather than looking only into investments. 

The wealth manager’s strategy should be tailored to the client’s risk tolerance, financial situation, and financial goals. When the strategy is complete, the wealth manager will meet with clients on a regular basis to update goals and review the client’s financial situation.

Advantages of Wealth Management

• Clients can meet with wealth managers to develop strategies that best suit their risk tolerance.
• When compared to financial advisors, wealth managers charge a lower service fee.
• Fees charged by wealth management firms and individuals differ; thus, there are numerous ways to pay fees in the market.
• The service not only focuses on finances, but also on other critical aspects such as succession and legal issues.

Disadvantages of Wealth Management

• It is difficult to calculate the total fees that will be paid. When providing this service, wealth managers charge a set of fees.
• Because of the high level of remuneration, it is difficult for advisors to assist clients in making decisions that benefit them; wealth managers can sometimes be self-serving.

Conclusion

Wealth Management is primarily a service for the ultra-wealthy; however, other services are available in the market for those who are not as wealthy. The service offers benefits that aim to not only enrich you financially but also to assist you to leave a legacy and pursue your philanthropic endeavours.