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What is Wealth Management?

Answering that question is a lot like asking “what is beauty?”. The answer to that question is often said to be in the eye of the beholder.  Beauty doesn't exist on its own but is determined by the observer. The same can be said about the question “what is wealth management?”.

When someone in the financial services industry is asked that question, the answers often vary based on the services or products that that individual or firm offers. An example would be an insurance company where their agents sell insurance but describes its insurance agents as providing wealth management. Or an investment firm that is solely managing your investments but refers to those services as wealth management.

More common are firms that include the investment management but also a number of other services, such as advanced planning (retirement, education, stock options), risk mitigation (insurance recommendations), estate planning, tax planning, RSU or options planning, etc.

When members of the public are asked the same question, the answers vary greatly for two reasons. The definition of “wealth” varies between people.  One individual may think having $10,000 in the bank would be wealthy, yet for others it may be $100,000 or $100 million. The other reason is that most people have never taken the time to think about all the processes that can be used to manage their wealth.

The media and members of the press have ideas as to the definition that are often along the same lines as that of the industry. Russ Alan Prince, a contributor at Forbes.com, states: “Wealth management is the consultative process of meeting the needs and wants of affluent clients by providing the appropriate financial products and services. Wealth management entails coordinating a team of experts to address the needs and wants of affluent clients.”

This definition of wealth management is only applicable to the top 1-3% of the US households, since the vast majority of individuals and families cannot afford this level of service at their level of wealth.

A definition of Wealth Management that can apply to everyone

Wealth management is the utilization of processes, services and products designed to grow, protect, utilize and disseminate one’s wealth. The level of one’s wealth will determine two things. The first is if the services and products are affordable. The second is if one manages their wealth in a piecemeal approach working with a number of individual providers or in a coordinated consultative approach.  If we were to break down the spectrum of wealth into three groups, we may have:

Little Wealth 

For those with little resources, one may not be able to afford the associated services or products for the management of their limited wealth. They may be able to keep a roof over their head and food on the table but have no extra resources to protect their limited wealth.

Moderate Wealth

Having greater abundance, which could be characterized as being in “the middle class”, allows for more options and the greater likelihood that individuals and families can afford to implement techniques or products to grow, protect, utilize or disseminate their wealth.

This could include, buying certain types of insurance policies, planning for education or retirement or engaging the services of an estate planning attorney. These different processes, services or products, are often obtained from different providers or firms. There is no or little coordination between the providers.

Greater Wealth

With more assets there are greater complexities and more options to wealth management. With greater wealth, it is more common to adopt an overall approach or interconnected level of services. This is the level of services that the industry or press and media often refer to as “wealth management”.

Most firms offer the truly affluent one of two approaches to wealth management:

  1. Collaborative approach- In this situation a firm or individual will often act as the hub of a team of advisors. This approach can include a Certified Financial Planning professional (CFP) providing the financial planning processes and investment management but in coordination with the individual or family’s other advisors (tax, legal, insurance, etc.). In this way, there is an integrated approach to growing, protecting, utilizing and disseminating the clients’ wealth.
  1. Single office approach- This approach is commonly offered by big banks, brokerage firms or what are known as family offices. The firm will have staff that deals with particular areas such as investments, others for risk mitigation, and will have professional staff for estate planning, and tax planning, etc. all in one office.  Broker-dealers have been quick to see the value in supporting their advisors in providing additional services to the affluent. LPL Financial Services as an example, within the past few years, acquired a mortgage company, a general insurance agency and trust company to be able to sell additional services to their advisors’ clients. 

No matter your level of wealth, it would be worthwhile to determine how you plan to grow, protect, utilize and disseminate your wealth.

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