What we'll cover
The definition of wealth advising
What a wealth advisor does and how they help you build wealth
Whether you need a wealth advisor
What is wealth advising? At first glance, you might assume that you have to have considerable wealth in order to take advantage of wealth advising — and that can be true, but what constitutes “considerable wealth” varies greatly by firm.
A Magnify Money survey revealed that 42% of Americans think financial advisors are only for the wealthy (with 50% of consumers thinking financial advisors cost more than they do). But a whopping 95% of those who do have a financial advisor say they’re worth the money.
We'll walk you through a few basic questions you might be wondering about: What is a wealth advisor and what’s their purpose? What’s the difference between different types of advisors (robo, wealth, financial)? And finally, what makes for a great wealth advisor?
What is a wealth advisor?
Put simply, a wealth advisor provides services to a wide array of clients, from affluent to ultra-high net worth. They bring with them a vast understanding of financial trends, insights and strategies and can guide you along your own financial path. Don’t have a concrete path? A good wealth advisor can even help you figure out what that means for you based on your goals and lifestyle — in fact, wealth advisors act as fiduciaries, meaning they are required to put your best interests first.
A wealth advisor’s job is to make your finances uniquely yours — to help you understand your choices and opportunities and enable you to put your best financial foot forward.
What is the purpose of a wealth advisor? What does a wealth advisor do?
In essence, a wealth advisor offers financial planning that covers a wide variety of comprehensive management, including the following:
Estate planning: Estate planning refers to organizing and arranging a person's estate and belongings during life for after death and in the case of becoming incapacitated. While wealth advisors might give guidance on matters of estate planning (including wills and trusts), if you’re looking for legal advice, it’s best to look to an attorney as well.
Tax planning: Tax planning helps to manage wealth using a tax-efficient strategy that takes opportunities to reduce taxes in the long term and takes laws into account that will also impact taxes. It also plans for future tax possibilities and tries to project what tax laws might affect your wealth in the future. For tax matters, it’s also a good idea to consult with a tax professional for your specific needs.
Goal planning: Goal planning refers to guidance in managing financial goals — however many that may be — and their associated time horizons.
Investment management: Investment management refers to handling and strategizing financial assets and other investments, not just buying and selling.
A wealth advisor can help you build a comprehensive wealth plan, whether you need help with investment management, estate planning, real estate, your assets or otherwise.
Difference between robo advisors vs. wealth advisors
What's the difference between robo advisors and wealth advisors?
Robo advisors provide automated portfolios based on your indications of your specific needs. You fill out a questionnaire and the internal algorithm for the robo advisor assesses your risk tolerance, investment time horizon and primary objective. Know that robo advisors, while mostly managed by an algorithm, are also monitored by licensed advisors, who you don’t interact directly with.
Your robo advisor will put your money in a diversified portfolio of funds, allocating your assets as indicated by your needs. Oftentimes, robo advisors focus on one primary goal, perhaps based on a questionnaire you fill out when opening an account. The robo advisor handles your portfolio and works to periodically rebalance it by adjusting the weighting of your assets to make sure they still fit your objective.
Wealth management, on the other hand, involves a much more hands-on approach to your money that involves the personal touch of a human wealth management advisor. Generally, wealth management refers to your holistic financial plan, including all your assets and all your goals — very different than the robo advising approach done via algorithm with, typically, one primary goal in mind.
Difference between wealth advisors vs. financial advisors
The nuances between a wealth advisor vs. a financial advisor might seem closely related, especially compared to wealth advisors vs. robo advisors. You can think of the term “financial advisor” as an umbrella that covers a wide variety of types of financial advisors — including wealth advisors or managers, who form a subset of financial advisors. Other types of financial advisors include certified public accountants and chartered life underwriters.
The type of advisor you choose depends on your financial situation. If you have a high net worth and prefer comprehensive financial management of your overall wealth, a wealth manager might make sense for you. A wealth advisor, on the other hand, might focus only on assets under management at their firm.
However, if you don't have too much in the way of assets or are just starting out, you might consider a financial advisor to help you with just your finances — without a legal or holistic lifestyle approach.
Check the asset requirement for each type of manager you're interested in using, especially because requirements vary by firm. For example, you might find that you have to have a $1 million net worth to work with a certain firm — that may not be where you currently are, but it could be vastly different from a different firm. For instance, you can begin working with an Ally Invest Senior Financial Advisor at $100,000 in assets.
What makes a great wealth advisor?
Great wealth advisors have a stellar track record of client satisfaction. You'll want to look for someone who acts as a fiduciary, which means that they put your specific needs ahead of their own when they invest your money.
Depending on your situation, you may want someone who:
Has the right specialty for your needs
Chooses a strategy that you agree with
Has excellent credentials
Gets paid in a manner that you agree with
Takes your best interests into account (i.e. acts as a fiduciary)
You feel comfortable with
You may have other requirements for your personal needs, so make sure the advisor you choose fits you best. Good wealth advising is personalized, so, in addition to working with someone qualified, you want to have a trusting relationship with your advisor.
How much money do you need to have a wealth advisor?
Many advisors require you to meet a certain threshold of investable assets. Wealth advisors may start at $100,000. However, some may require you to have $500,000 or even $1 million in investable assets.
Pro tip: Investable assets include your liquid or near-liquid assets (for instance retirement accounts, savings accounts, mutual funds, cash, etc.). They do not include properties or physical items, such as your home or vehicle.
Before you start interviewing wealth advisors, you want to make sure you understand what you must bring to the table before you get started.
Are wealth advisors worth it?
It's important to know that the costs of a wealth advisor and the services available vary depending on the provider. You're likely to pay more for a comprehensive approach than you would for basic investment management advice.
Think about what you’re looking for in an advisor — choosing a wealth advisor for their very comprehensive advice based on your specific situation may be worth the value for you.
Are you ready for a wealth advisor?
Your readiness for a wealth advisor depends on what you’re looking for. Wealth advisors help their clients with the following: investment management, wills and trusts, estate planning, philanthropy, succession planning, tax strategies, gifting to heirs, generational wealth building, financial education and more.
Consider your financial goals, how you envision a wealth advisor fitting into your life and what a wealth advisor can do for you. You'll also need to make sure you fit into at least the asset minimum for a wealth advisor. Check on advisory fees and whether your wealth advisor is a fiduciary.
If you're a high net worth individual, you may find that your specific situation warrants the expertise of a wealth advisor — just put together your checklist of needs first.
