Is a Wealth Manager Worth It?

David Bolton

/

March 2, 2021

Retirement Wealth
Is a Wealth Manager Worth It? | Retire Fearless

Deciding whether or not to use a wealth manager is a big decision. Knowing everything you can will help you decide without too much stress.

Knowing exactly what a wealth manager can do for you is important. It is also important to consider how much they cost, the benefits of using one, and your current financial situation.

A wealth manager is worth it if they add value, monetary or otherwise. They can increase returns and provide financial advice. They aren't worth it if they charge more than the value they provide, if you like controlling your own money, or if you have simple investments.

This article aims to give you the best non-bias information on the benefits and costs of hiring a wealth manager to help you plan and to manage your investments. By synthesizing information from financial experts we have outlined the necessary information so that you can make the best decision for your unique situation and goals.

Is a Wealth Manager Worth It?
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What Does a Wealth Manager Do?

A wealth manager, or wealth management advisor, aims to assist clients with high or ultra-high net worth in growing their wealth. They also protect assets by reducing financial risk. A good wealth manager will take your specific financial situation and your unique goals into account in order to adequately manage your portfolio.

In general, wealth management firms work with clients who have assets worth $1 million or more. There are wealth managers for people who have assets less than $1 million, but some will only work with clients who have assets worth $2 million, $5 million, or even $10 million. Keep this in mind when researching wealth management advisors.

Wealth managers will work with your entire financial life. They can help clientele with financial planning, investments, retirement planning, tax optimization, and even accounting. They may even be able to offer advice on financial legal issues such as estate planning. They can help you set clear financial goals so that you can make your dream future come true.

Not only can they help you maximize returns from your current investments, but they can also offer you advice in diversifying your portfolio with new growth methods.

A lot of wealth managers have specializations based on their expertise or focus. It is important to find one that fits your financial situation.

How Much Does a Wealth Manager Cost?

There are a few different ways that wealth managers charge their clients and their fees range quite drastically.

The most common fee structure is one where the wealth manager charges a percent of the assets that they are managing. Typically, the fees will be reduced for wealthier clients, particularly ultra-high net worth clientele. The fees can range anywhere from 0.7% all the way to 2%  depending on the firm, the manager's experience, and your net worth.

Another way that management firms charge is through annual fees. This is a one time per year fee for their services. The fee can be anywhere from $12k to $55k or more. This typically comes out to about the same amount as the percentage fees, but one option may be less for you so it is good to check out different firms.

It is fairly rare, but some managers will charge an hourly rate. This is sometimes a good option for those seeking regular advice without constant management. If you need more, you pay more. If your needs are met with little time, you can save money by not paying an annual percentage or set fee.

These three fee types are sometimes combined. A wealth manager may charge a set annual fee in addition to a percentage. There may also be surcharge fees for extra advice or services.

Benefits of Using a Wealth Manager

There are some major benefits of using a wealth manager that should be considered before you decide if hiring one is worth it for you. Not every one of these benefits is found with all wealth management firms, but some offer these services and more.

Retirement Planning

Since we all want to retire comfortably, we need to plan ahead and choose investments accordingly. Since you won’t be working, you need to have a nestegg you can live off of. Even if you have a pension, it may not be enough for your retirement plans. This is especially true if you plan on traveling during your golden years.

A wealth manager can help allocate funds and diversify your portfolio to increase your returns so that you can be prepared to retire by the time you hit 65 or 66 (or whatever age you plan on retiring). A good retirement plan is valuable because it can ease your mind and save you the time of managing and planning yourself.

Range of Services

A wealth manager can be a “one stop shop” for your financial needs. They will monitor your assets in relation to your entire financial situation and offer a broad range of services from planning to diversifying to accounting.

This is not only convenient, but also gives the wealth manager access to your entire situation so that they can make the correct decisions for your specific needs and situation.

Investments

Of course you want to grow your assets as much as possible, but it can take time. A wealth manager can reduce unnecessary risks, maximize your returns, and diversify your investment portfolio. A skilled wealth management advisor will be able to give you the best options for the amount of risk that is good for your particular age and financial situation.

They have a holistic mindset about your finances so that you can benefit in both the short and the long term. They can help you invest in new areas like real estate and increase your returns while simultaneously reducing your risk.

Logical Financial Decisions

For many of us, it is extremely hard to take all emotions out of our financial decisions. A wealth manager can direct our investments without any emotion and make the best decisions as far as risk, short-term, and long-term financial success is concerned.

Taxes

A wealth manager can help you optimize your tax situation. They use varied strategies and have experience working with clients in high tax brackets. This could be a significant source of money for you if you do not currently have a good tax expert.

When Should I Hire a Wealth Manager?

Wealth management is not for everyone, so how do you know if you are ready? If your assets just reached enough to qualify for wealth management advisors, is it time to transition from more basic financial advice?

There is no single answer for when wealth management may be right for you. However, since a wealth manager monitors your entire financial situation and costs a lot to hire, you generally don’t want to hire one for simple investments or planning.

When your situation gets too complex time consuming for you to handle on your own and you have assets worth at least $1 million, you may want to look at the ways a wealth manager could benefit you in your current situation. Some wealth managers will even offer a low cost or even a free consultation to help you with your decision.

You always need to take the cost of hiring a wealth manager into consideration. Nobody wants to hire a wealth manager just to find later that they are actually losing money because of the fees that are assessed. For some, the returns will be significantly higher than the costs of hiring a wealth manager, but for others the difference may not be made up.

You also need to consider the time they save you from worrying about your accounts and planning. You will not need to spend time looking at new investment options, but if you enjoy managing your own money you may not want to hire someone to do it full time.

Last, you want to consider your long term goals. Sure, the cost of a wealth manager may not be very much, or any, for now. However, if they can significantly increase your returns in the future it may actually be worth it to stick it out. This makes the decision hard and it may help to ask advice from several financial experts before settling on a wealth management advisor.

Cost vs. Benefits

It is very easy to determine how much a wealth manager will charge you even if it is a percentage. It is more difficult, however, to judge their value. Their value in terms of monetary value is the objective benefit of using a wealth manager and is likely the most important factor that you should consider when deciding whether or not to invest in a wealth manager.

You can look at your current investments and calculate the percent increase easily as well, but to see how much you will gain in returns, you need to see how a wealth manager does. That may not be the way you want to decide.

You can also check out this table to see an implementation of a logical cost-benefit analysis. You can do the same thing with your asset amounts. Then, if you spend a significant amount of time managing your investments, you need to multiply the hours by the amount of time each hour is worth to you. Then, you can add this to the amount to see if hiring a wealth manager is cost effective for your situation.

A lot of the time, the costs of hiring a wealth manager are not worth the amount they gain in returns. However, there are other situations where a wealth manager will significantly increase your money beyond the amount they charge. Every situation is unique and every outcome is different.

How to Choose a Wealth Manager

Choosing the right wealth manager is a big decision because it can be the difference in a positive or negative difference between gained returns and cost. First, to narrow down your search you should ask different firms and managers what types of clients they work with. Some work only with ultra-high net worth clients and others work with those who are just getting into the high net worth amounts.

The pricing and fees are obviously going to be an important consideration as well. You should compare the prices of several wealth management firms, but also consider their track record and specialty if they have one. Also, some managers will only work with your investments, while others will help with tax optimization and planning as well. When looking at a wealth management advisor’s track record, you don’t want to only look at the amount of money their clients trust them with. You also need to look for any awards or other positive recognition. Some firms even have reviews with the Better Business Bureau so that you can see how they handled other people’s assets.

It is a good idea to schedule a consultation with any managers you are interested in. Then you can discuss your needs and financial situation. The best managers should ask detailed questions and take an interest in helping you. This is a good way to vet out inconsiderate or unprofessional firms and managers.

About THE AUTHOR

David Bolton

With multiple family members currently in senior living facilities, David is in the trenches every week, learning the ins and outs of nursing homes, assisted living, memory care, and general senior living.

Read more about David Bolton

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