Wealth Management
Wealth management – what exactly does that
phrase mean? How does it differ from financial planning and investing?
While it may sound like just another buzzword, wealth management
actually is an approach used by financial advisors to manage the wealth
of their top tier clients who have more money than the average investor.
There is no hard and fast rule as to the amount of financial assets a
person must have to be included in the wealth management category, but
when a person accumulates over $1 million in assets, he and his
financial advisor should consider shifting their focus from typical
financial planning to the idea of wealth management.
What Wealth Management Is and Is Not
So what exactly is wealth management? Wealth management involves the
planning, investing, and managing of the assets of those of you with
over $1 million to your name, excluding the cost of your house. When you
reach $1 million in assets that is the time to start shifting your
financial thinking from plain old banking to wealth management.
What makes wealth management different from regular financial
planning? Wealth management involves private banking, estate planning,
asset management, legal resources, and investment management all
provided by the same investment firm. For much of the 20th century,
providing all of these services together by one firm was outlawed by the
Glass-Steagall Act, so all clients had to use an investment firm for
investing in assets like stocks and bonds but use a separate commercial
bank for checking services and an insurance company for insurance
services. Now, investment firms can provide all of these services to
their clients.
Wealth management is not necessarily the best approach for each
investor. Again, if you have less than $1 million, your financial
planning needs can probably still be best served by using separate
banks, insurance companies, and an investment firm for long term
financial goals. However, for those in the top tier of wealth, having
one firm provide all three services in one place gives you both
convenience and an edge in managing your wealth.
How Wealth Management Became an Investment Strategy
Wealth management as a strategy was not an option until the
Glass-Steagall Act was abolished. For much of the 20th century, the
Glass-Steagall Act prohibited an investment firm from providing
investment, insurance, and banking services at the same time. The
Glass-Steagall Act was a holdover from the Great Depression of the
1930′s that was passed in response to the stock market crash of 1929. It
established the FDIC and prohibited the mingling of commercial banking
and investment banking. Provisions in the Glass-Steagall Act were slowly
whittled away as the 20th century progressed until it was finally
repealed entirely in 1999, allowing investment firms to start providing
insurance services typically provided through an insurance company and
banking services that clients previously had to use commercial banks
for. As a result, investment firms that had previously provided services
such as buying and selling stocks could now offer services previously
permitted to commercial banks, such as checking accounts. The result was
the ability to focus on wealth management of top tier clients and
provide these clients with all their financial and banking services
through one firm.
Why Worry About Wealth Management?
Why Worry About Wealth Management?
How hard can it be to plan for the future? Just deposit your checks
into your bank account, and occasionally move any excess money into a
savings account, or maybe purchase a Certificate of Deposit that pays a
good interest rate. Then, in twenty or thirty years, you’ll have enough,
plus your social security, to retire and live comfortably for the rest
of my life. Sorry, but it’s not quite that simple.
Each person’s situation is different and there is no absolute right
or wrong time to begin using the services of a financial advisor.
However, if the above description typifies your outlook on your
financial future, you may be in for a rude awakening when you are ready
to retire. Meeting with a financial advisor can give you access to his
expertise, and you can explain your goals and together you and the
advisor can make investment decisions that will help you achieve those
goals. There are several reasons to consider engaging the services of a
financial advisor.
Reasons to Use a Financial Advisor
Reasons to Use a Financial Advisor
Knowledge. Financial advisors have vast
knowledge of the myriad of investment choices available, from IRA’s to
Educational Savings Accounts to stocks and bonds. Unless you are
prepared to do quite a bit of research on your own, a financial advisor
will be able to recommend a course of action after discussing your
finances and explaining these options to you. Relying on a financial
advisor’s knowledge will allow you to make smart investment decisions
more quickly than if you had to research all these investments on your
own.
Taxes. Financial advisors also know the tax
rules that affect investments and can help you avoid costly mistakes
and make decisions that will reduce your tax liability now and in the
future. For example, did you know there is phase out of the amount of
money you can contribute to Roth and Traditional IRA’s when you reach a
certain income level? Your financial advisor will understand these rules
and help you adjust your investments accordingly. Tax rules and laws
can be very complicated, as we all know, so paying a financial advisor
for his expertise in this area is well worth the saved time and effort
on your part.
Objectivity. Financial advisors can also provide an
objective opinion on your situation. They are mostly free of personal
involvement in the details of your personal situation, so they can give
financial advice from a neutral perspective and show you options that
you may not have been able to see for yourself.
Peace of mind. A financial advisor can take the
worry and fear out of investing. Financial advisors deal with these
issues every day, so you can have peace of mind knowing that you made
good investment decisions after discussing your situation with your
advisor and relying on his input and recommendations, rather than trying
to go it alone.
Wealth management and financial planning are significant aspects of
your finances that are most likely best handled with the guidance of a
financial advisor. To make your money work for you and to meet the goals
you have made for yourself, you and your financial advisor can
determine a wealth management strategy that best suits your personal
situation.
No comments:
Post a Comment