What is private wealth management, how does it differ from regular financial planning, and what services can you expect when working with this type of specialized wealth management advisor? The simplest way to define private wealth management is that it involves investment management and financial planning for individuals with significant wealth. High-net worth individuals have more complex needs when it comes to investment strategy, tax planning, asset allocation, asset protection, and more. In order to warrant the assistance of a private wealth manager, you typically need investable assets of at least $1,000,000. Beyond that, however, all private wealth clients are different and have solutions tailored to their specific needs.
Private wealth managers are specialized financial advisors who regularly keep tabs on most or all aspects of your financial situation and use more customized strategies to grow and protect your wealth. They’ll also manage your portfolio, which is typically much more complex than those investments under management for clients with smaller portfolios. They also typically integrate their wealth management solutions and strategies with other professionals (such as a lawyer and an accountant) to create a specialized team managing the client’s financial affairs.
You may be asking, “Is it worth paying for a private wealth manager?” Read on to learn more about the value one can bring.
Individuals and families who do warrant the help of a private wealth management firm can take advantage of a range of holistic services. Explore each area that’s common among high-net worth individuals to get a sense of what to expect in financial planning and portfolio management.
Income tax planning is incredibly important for high net worth individuals. A private wealth manager helps you navigate the latest tax rules and regulations. (Note: it is important to consult with your tax advisor on specific tax-related strategies). This is particularly relevant because of major changes that have been implemented in recent years with the passage of 2017’s Tax Cuts and Jobs Act (TCJA). In addition to helping individuals, tax planning also benefits those with a closely held business, especially during periods of transition like selling the company or passing it on to a family member.
In coordination with your trust and estate attorney and tax preparer, a seasoned wealth manager helps you decipher the tax-efficient approaches to handling your wealth and transferring it to the next generations. Otherwise, you run the risk of losing a large chunk of your hard-earned money without taking full advantage of the breadth of tax strategies that are available to you.
Major life events, whether expected or not, can have a huge impact on your finances. Coming into a large inheritance or selling a company you built from the ground up — these things can create sudden wealth, no matter how your finances were beforehand. If you’ve never managed such a large amount of money before, engaging a private wealth management firm helps you prioritize your financial goals and, of course, minimize taxes.
A private wealth manager looks at your finances before the receipt of wealth, including your existing debts and income sources. You’ll also talk about your goals, both in the near-term and the long-term. Maybe you want to buy a new home or pay for your children’s future college education. Maybe you have a charity you’d love to financially support. A wealth manager walks you through scenarios to understand the potential costs and ideas how to mitigate your taxes.
Stewarding sudden wealth can be more emotionally charged than managing wealth as you build it over time. That’s why it’s crucial to get an experienced private wealth manager on your team early on in the process — even before you receive the funds, if possible. Early planning helps you put a strategy in place, as well as get things in place like insurance policies to protect your newfound wealth.
Another private wealth service is getting investment advice for how to navigate executive equity ownership and compensation issues. As your professional experience grows, the options available in your benefits package can also change significantly.
A private wealth manager helps you review retirement plan options in addition to equity-based compensation. These choices may be complex, especially in the startup world. You may be offered incentive stock options (ISOs), non-qualified stock options (NQSOs), restricted stock units (RSUs), and employee stock purchase plans (ESPPs). At D&Y, we also help you analyze your personal salary structure and other details. It’s crucial to negotiate an executive compensation plan that’s truly in your own best interest.
Legacy planning takes estate planning to the next level. More than naming beneficiaries in your will, the goal is to use your wealth to make a lasting impact in areas that are important to you. It may be through transferring assets to family members, donating to charitable causes, or a combination of the two.
Minimizing the tax burden of those gifts is also an important aspect of this process for clients.
Your private wealth manager is an important player in legacy planning, but they’re not the only one. You’ll likely also tap into the expertise of an estate attorney and your accountant. At Dowling & Yahnke Wealth Advisors, for example, we collaborate with all of the professionals in your sphere on a regular basis. Together, these professionals offer a team effort to handle complex scenarios of your financial plan.
For example, a private foundation can be formed as a non-profit organization. Not only do the funds and assets allow you to take a tax deduction, but they can also help reduce the size of your heirs’ estate tax. Another effective tool for this is a family limited partnership, which can limit the size of income, estate, and gift taxes when the time comes.
All of these strategies (and others) have detailed regulations that must be meticulously followed. That’s why a seasoned private wealth manager stands out from a typical financial planner who may not have experience with this type of generational wealth transfer. Your wealth manager can also recommend other professionals experienced with the intricacies of significant wealth. The legal and accounting aspects are just as important to manage as the financial side, and all of the pieces of the puzzle must come together for a truly successful strategy.
Preservation is an important part of wealth management, and not just in terms of leaving a legacy. Asset protection creates a proactive financial plan to protect your assets from the risk of legal action in the future. After all, no matter how much discretion you use in your financial matters as an affluent individual, you may become a likelier target as your wealth continues to grow.
When you work with a private wealth manager, you should develop a smart insurance policy, including umbrella liability insurance that matches the value of your assets. As time goes on and your wealth builds, you may need to revisit these policies to make sure you’re sufficiently covered. Having these preventative measures in place before any legal issues arise is the key to protecting your wealth.
Whether you have an injury on your property, get in a car accident, or end up going through a divorce, an appropriate level of asset management and protection makes sure you’re covered in each of these circumstances. A private wealth manager has the experience to prepare you for the unexpected so that your finances are protected as much as possible.
Private wealth management takes the job of a financial advisor to the next level. As your wealth grows, you need more complex structures and strategies in place to grow and protect your assets. As a private client, enlisting the help of a private wealth management firm makes sure you have access to the expertise required to best steward your money and work towards achieving any financial goal you set forth.
Contact us today at Dowling & Yahnke Wealth Advisors to speak with one of our experts and learn more about our financial services, including asset management in San Diego.