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If you’re on the hunt for financial advice, you’ll encounter financial advisors and wealth managers, each of which offers a number of different services. While financial advisors and wealth managers overlap in some ways, these advisors place a different emphasis on some elements. Wealth managers focus on the various issues surrounding wealth, such as inheritance planning, while financial advisors have a well-rounded approach on financial topics.
Here are the key differences between wealth managers and financial advisors.
What is a wealth manager?
A wealth manager handles the issues surrounding their clients’ wealth. They focus on growing wealth as well as maintaining it, arranging tax-advantaged strategies, estate planning services, charitable giving strategies and more areas related to wealth management. Wealth advisors typically charge a fee as a percentage of assets under their direction, giving clients a comprehensive package of services and advice.
Key tasks of a wealth advisor include:
- Growing wealth: Wealth advisors focus on growing their clients’ wealth, mitigating risks and helping clients find attractive investments that can increase their net worth.
- Maintaining wealth: Less obviously, wealth managers also seek to maintain clients’ wealth, especially for older clients, ensuring that they do not lose it.
- Estate planning: Estate planning is about effectively directing your assets where you want when you die, while reducing taxes on that wealth.
- Tax planning: Wealth managers set up strategies that help clients reduce tax issues with their wealth or otherwise minimize their taxes.
- Charitable giving: Charitable giving can be a source of personal fulfillment and tax reduction, and setting it up correctly can make it more effective.
Wealth managers may work on other areas, of course, such as retirement planning, but the biggest focus is on wealth issues.
What is a financial advisor?
A financial advisor can be a bit of a catch-all term for anyone who provides financial advice. A financial advisor may provide advice on investment management, taxes, retirement planning, insurance and many other topics, depending on the advisor and their specialization. But a financial advisor who is a generalist provides a broad range of advice on the financial issues that are most important to consumers, including investing, retirement, insurance and taxes.
Advisors who work with securities are usually required to be registered with the state, helping to ensure that they’re qualified and meet regulatory mandates that protect their clients.
Some key tasks of a financial advisor include:
- Budgeting: Advisors can help clients prepare budgets and get their financial lives on track, finding ways to boost savings and overall wealth.
- Investment management: Advisors may also help clients invest their money and make smart investment decisions, using principles such as diversification.
- Goal planning: Advisors help their clients discover their financial and life goals and then construct a financial plan to reach those goals.
- Retirement planning: Retirement planning is a big focus for advisors, because it’s one of the most important goals for clients. Advisors can help optimize 401(k) plans and IRAs, and generally put clients on the right long-term path.
- Estate planning: Some advisors will help clients put together an estate plan, helping direct assets to the right heirs.
- Taxes: Advisors provide routine tax advice, especially as it affects clients’ core finances, including investments and income. Advisors can also recommend a specialized advisor if clients have more complex issues that they don’t usually handle.
- Insurance: Advisors may help clients with a specialized insurance product such as life insurance and annuities, if that meets their needs.
While generalist advisors may offer all these services, some advisors may narrow their focus to specific areas or to specific client types who have similar needs or goals. That’s why it’s important to understand what areas your advisor focuses on and how they can help you.
Wealth manager vs. financial advisor
The differences between a wealth manager and a financial advisor can be substantial, but in broad strokes they boil down to the areas each individual focuses on.
A wealth manager focuses on the financial issues that are connected with the possession of wealth, including how to grow and maintain it, minimize taxes on it and pass it on to the next generation. Because of this focus, a wealth manager works with high-net-worth individuals, who often have issues that are less routine or more specialized than the average advisor’s client.
In contrast, financial advisors tend to focus on a broad range of financial issues that are relevant to many clients, topics such as retirement planning, budgeting, goal planning and investment management. Some financial advisors, however, may focus on more niche areas or clients, for example, specializing on financial issues that arise among doctors or lawyers.
Another key difference between a wealth manager and a financial advisor is how they’re paid.
Difference in fee structures
Wealth managers and financial advisors may have different fee structures, though it depends on the individual.
Generally speaking, wealth managers tend to charge a percentage of your assets as a fee. While the advice may be more expensive this way, this structure at least somewhat aligns the incentives, meaning that the advisor has some interest in you growing your wealth over time.
In contrast, many financial advisors charge on a per-hour or per-job basis, so whether you have $50,000 or $500,000, you’ll pay the same for the same work. That can end up much cheaper for clients, especially if they don’t need the specialized advice of a wealth manager.
Regardless of which route you go, however, you want to be the person paying the piper. If your advisor receives commissions from financial institutions that offer products or services, then the advisor has a conflict of interest, meaning you may not receive the best advice. That’s why many experts recommend seeking out fee-only advisors to help align everyone’s incentives.
Do I need a wealth manager or financial advisor?
If you’re trying to decide between a wealth manager and a financial advisor, you’ll want to consider a few things. One of the biggest factors is your net worth.
You’ll need to have a significant amount of money before a wealth manager will be interested in working with you, and having more money means that their specialized advice will be more valuable to you. You might need $500,000 in assets to get started with a wealth manager, but many have minimums that are much higher still.
Wealth managers may also be a good fit when you have other complex issues related to wealth. For example, estate planning can be a tricky situation that requires highly competent individuals to meet your goals, and tax strategies can be a good place for a wealth manager to add value, given the potential costs to you if you get it wrong.
If you’re after general investment management, then many financial advisors offer that service and if you’re just getting started with investing, then the best robo-advisors are a great pick to begin growing your wealth with time-tested investment strategies at low cost.
A financial advisor is a good pick when you’re looking for “big picture” advice on a range of different topics. These include investment management, retirement planning, budgeting, setting up insurance, taxes, goal planning and more. The best financial advisors help motivate you to stick to your financial plan, especially during tough times when it’s easy to get sidetracked.
A financial advisor may also be a good choice even when you do have significant assets, especially if you don’t have a complex financial situation. Many financial advisors charge per hour or per job, meaning your fees won’t be based on your wealth, as they typically are with a wealth manager. You may end up saving significant money, especially for routine tasks.
Of course, some financial advisors specialize in different areas than others, so it’s important to be sure that any potential advisor meets your individual needs.
How to find a wealth manager or financial advisor
Whether you’re looking for a wealth manager or a financial advisor, you need to find someone who understands your situation and whom you can trust. Experts say that you should treat the process like a job interview, meeting with multiple people, as you hunt for your new advisor.
Family and friends can be a great source of referrals, but you’ll need to speak to potential advisors, asking about their services and what they do for you. You’re entrusting them with one of the most sensitive parts of your life – plus paying them to do so – so you’ll want someone who you can work with. Here are experts’ top tips for finding the right advisor for you.
If you’re looking to find a wealth manager or financial advisor, Bankrate offers an advisor matching tool to match clients with experts in minutes.
Bottom line
Whether you’re in need of specialized wealth management services or general financial advice, it’s important to carefully consider your net worth and individual financial needs before choosing between a wealth manager or a financial advisor. Remember to thoroughly research and interview potential candidates to find one that aligns with your goals. Ultimately, the right professional can help guide you toward a successful and secure financial future.
— Bankrate’s Rachel Christian contributed to an update.
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