Financial help comes in a variety of formats, making it important to understand the best type of service for your unique situation. While a financial advisor offers in-depth advice beyond investments, individuals with more complex scenarios may turn to a wealth manager instead. While there is some overlap, there are ways to figure out which makes the most sense for your needs.
So, what’s the difference between a wealth manager versus a financial advisor? Here’s what to expect from each type of professional so you get the service you need to reach your long-term financial goals.
Expect to find a fairly broad range of services from financial advisors. Some may primarily manage a client’s investment portfolio, which involves assessing short-term and long-term goals and choosing the right investments to try and meet them. A financial advisor, potentially in partnership with a financial planning team, regularly reviews portfolio performance and rebalances as necessary to maintain a target asset allocation.
A financial advisor frequently offers holistic advice on a variety of topics. Here are the services you might see from a financial advisor.
So, what is investment management exactly? Any type of financial advisor who oversees your investment management should include a conversation about your current needs and future goals. They’ll create a plan to help address those concerns alongside your risk tolerance and liquidity needs in a financial plan. Together, you’ll regularly review your target asset allocation to make sure it still aligns with your goals.
Taxes are an important part of your investment strategy. While a financial advisor shouldn’t replace your tax advisor, there is some overlap since some investment accounts are taxed while others are not.
A financial advisor can help you navigate tax-related issues in the following situations.
Choice of accounts. Each type of investment account comes with different tax implications. A financial advisor reviews your available options to maximize tax-advantaged accounts like IRAs and 401(k)s. They can also add tax efficient investments into your taxable accounts in order to minimize your tax bill.
Tax loss harvesting. This strategy requires daily tracking of your investments. Your advisor may sell certain securities at a loss to reduce your capital gains and replace it with a similar security to keep your portfolio balanced.
Charitable giving. A financial advisor can also give input on how to meet your charitable giving goals while also lowering your tax implications.
Financial planning is a dynamic approach to your life and wealth. Your financial advisor helps you make alterations as life changes. For instance, if you have children, you may wish to open a college savings fund. As your kids age and become adults, you may think about tax-efficient ways to leave an inheritance for them.
Changes in relationships also impact your financial planning, whether you get divorced or your spouse passes away. Rather than trying to figure out how to manage your new financial situation on your own, your financial advisor can offer guidance on the best steps forward.
Financial advisors help you prioritize your retirement planning. Most people want to know how much they’ll be able to spend in retirement based on their current savings. Your financial advisor, typically alongside a financial planning team, can run multiple scenarios to analyze how you stand today. From there, you can opt to make adjustments based on your goals and the current picture.
Advisors should be equipped to help you in both stages of the retirement planning process: the accumulation years as you’re working and growing your wealth, plus the distribution years as you begin to live off your investments. In addition to investment management, they’ll also advise on things like Social Security, pensions, and Required Minimum Distributions (RMDs).
Some advisors, however, may focus solely on investments, so ask about what to expect before you hire someone to help with your financial picture.
Wealth managers are a type of financial advisor; they just offer more specialized services on top of what was discussed above. In fact, there’s no technical designation differentiating financial advisors and wealth managers. But you do typically need to meet a minimum amount of invested funds in order to work with a wealth manager. This makes sure that you really need the extra help they give you, since financial planning becomes more complicated as your wealth grows.
In addition to managing your portfolio, a wealth manager uses more customized strategies to grow and protect your wealth.
Here are a few additional services you can expect to receive from a wealth manager compared to a financial advisor.
One of the biggest differences you’ll see with a wealth manager is their role as a coordinator for all of your service providers.
Tax planning: Financial advisors, including wealth managers, have a lot of hands-on influence over tax-related issues. Investments are typically taxed at some point, whether they’re in a taxable account or tax-advantaged account. Additionally, your wealth manager will also work together with your tax advisor or accountant to make sure you’re maximizing your tax savings opportunities.
Estate planning: Leaving a financial legacy becomes more complex as you build wealth. Whether you want to leave behind funds for your heirs, a charitable organization, or both, your wealth manager works together with an estate attorney to make it happen. Together, they’ll mitigate estate taxes and open strategic accounts that make sense, such as trusts.
Insurance coverage: Protecting your wealth is just as important as growing it. That’s why a wealth manager also partners with your insurance broker to make sure you have the right policies and limits in place to cover your needs.
As you get closer to retirement, you may start to think about how to handle the sale of a business or another type of sudden wealth event like selling a piece of real estate. Even with decades of experience managing your own finances, sudden wealth is difficult to navigate on your own. If you need help with wealth management, a financial professional can help guide you as they have helped many others in similar sudden wealth situations.
A wealth manager takes you through the financial planning process to find ways your new wealth can aid you in your existing goals and potentially fund some new ones. This financial professional also guides you in updating your other trusted financial professionals, like your accountant and estate attorney, to make sure all aspects of your financial health are where they need to be.
Climbing your career ladder is exciting, but it also comes with the opportunity to add new layers of diversification to your wealth. That’s where creating a financial plan can help. Your wealth manager helps you evaluate a number of compensation structures, including stock options, deferred compensation plans, and 10b5-1 plans. No matter what stage of your career you’re in, getting advice from this kind of financial consultant can help you make decisions on both new positions and how and when to retire from your current position.
Now that you know the difference between these two related professionals, how do you pick the right one? Here are a few ways to figure it out.
Wealth managers typically require a minimum amount of invested assets, so that’s the first indication that you may need this more specialized service. If you have other types of assets beyond investments, like real estate properties or a business, you may also benefit from a wealth advisor. They typically have experience working with individuals with complex finances, including entrepreneurs.
Think about the other professionals you work with (or should be working with) when considering a wealth manager. If you have a lot of external help with an accountant, tax advisor, and/or estate attorney, you could likely benefit from a wealth manager as well.
And if you’re interested in building this team of professionals from scratch but don’t know where to start, a financial consultant wealth manager will help you through the process. They’ll likely have a network of recommendations who regularly work with individuals in your situation.
A financial advisor offers a variety of benefits, as does a wealth manager when you have more specialized needs. Rather than just thinking of your investments from the perspective of your portfolio, remember to think of your big financial picture when choosing the right professional to help.
If you need help figuring out what type of financial advisor is right for your needs, contact Dowling & Yahnke Wealth Advisors. We offer a free initial meeting to assess your personal situation and give you actionable steps to move forward — regardless of whether or not you choose to work with us.