Wealth Managers vs Financial Advisors - Who’s Right for You?

Leaving your excess savings in a current account is financially irresponsible. Every day, inflation chews away at your money, and your wealth steadily erodes. Retaining the purchasing power of your money is important, but growing your wealth is the key to financial independence and a comfortable retirement.

So, how do you achieve this lofty goal?

Financial advisors and wealth managers offer you a way to remove the responsibility of managing your money. Chances are you don’t have a clue about investing in the financial markets. These professionals manage your money for you and keep it growing.

But what’s the difference between these consultants?

Understanding the Role of Wealth Managers

Wealth managers are financial professionals offering money management services to high-net-worth individuals with liquid assets amounting to more than $1 million. They actively manage your money using different strategies which could involve investing your capital into stock, bond, real estate, or fixed income markets. Typically, a wealth manager will create a portfolio of these assets, mitigating risk to ensure steady growth in your money.

Wealth managers also offer a range of financial services to safeguard your money and assets. They’ll consult with you to understand your financial goals and take care of your tax planning, estate planning and retirement planning. Wealth managers become a touchpoint between your money and your financial goals, actively managing your portfolio and its outcomes.

Understanding the Role of Financial Advisors

Financial advisors are slightly different to wealth managers. If you’re not a high-net-worth individual, you’ll leverage the skillset and services of financial advisors to provide you with the information you need to plan your financial goals.

They’re similar to wealth managers and offer a range of similar services, but they don’t actively manage your money. Instead, they’ll make recommendations based on their knowledge and experience. They show you where to invest and get the financial services you need to manage your money and retirement goals.

They provide a wide range of services concerning finance to clients at every single level of their financial life. Financial advisors show the right way to deal with money and advise on investing, saving, and planning. For instance, while a wealth manager might actively manage their clients’ money, a financial advisor will recommend various financial vehicles, like RIETS or index funds for their client to invest into. Financial advisors also offer services relating to budgeting, tax planning, debt management, and life insurance products. 

The Key Differences between Wealth Managers and Financial Advisors

Clientele and Focus

Wealth Managers – Mainly focus on high-net-worth individuals with complex financial needs. They take time to deliver customized and comprehensive services to preserve and grow wealth.

Financial Advisors – Deal with more clients who possess varying degrees of wealth. Their practice is somewhat generalized; for example, they help clients realize specific financially related goals.

Scope of Services

Wealth Managers – Provide comprehensive financial management, including investment management, taxation planning, and estate planning, among others. Such services are slotted and directed at fulfilling the unique needs for affluent clients.

Financial Advisors – They also provide a vast spectrum of services, although the scope is narrow compared to wealth managers. Their focus is financial planning, dispensing investment advice, and recommending essential financial services.

Personalized Attention

Wealth Managers – Since they focus on high-net-worth clients, these managers offer greater personalized attention and bespoke solutions. They’re proactive and actively manage their clients’ money, regularly reviewing investment strategies to suit market conditions and their clients financial goals.

Financial Advisors – While financial advisors provide customized investment and financial advice, they don’t actively manage their clients’ money. Instead, they make recommendations on where clients should invest their money, such as investment firms offering index funds or insurance firms offering life policies.

Wealth Managers Vs. Financial Advisors – Making the Right Choice for You

Consider Your Financial Goals

What do you want to achieve with your Finances? What are your retirement goals? What assets do you currently own? These questions are essential to understanding which professional to choose for your investment and financial advice. 

Track Record

The most important consideration when choosing a wealth manager or financial advisor is understanding their track record. How have they performed for their clients in the past? 

Top performing wealth managers are highly sought-after professionals, and they may charge higher fees depending on the returns they bring their clients’ portfolios. 

Financial advisors aren’t under the same level of scrutiny regarding their performance, but you’ll need to ensure they recommend the right investment partners and dispense beneficial financial advice.

Understand the Fees and Compensation Plans

Wealth managers and financial advisors have varying fee structures. Wealth managers essentially charge their clients a fee based on a percentage of the assets under management, typically 20% commission on the annual profits they make for their clients, and a 2% fee on total assets under management.

Financial managers charge a flat fee or hourly rates for their time, with no additional commissions. However, they may recommend investments where you’ll need to pay the investment firm fees to use their products, such as investing into a fixed income product with an investment bank.

The Pros and Cons of Wealth Managers Vs. Financial Advisors

Wealth Managers 

Pros

• Comprehensive and holistic financial planning.

• Substantial asset management expertise.

• Personal attention, with bespoke solutions tailored to clients’ needs and goals.

Cons 

• Typically catering to high-net-worth individuals. 

• Higher fees than financial consultants. 

Financial Advisors 

Pros 

• Serve a broader range of clients, typically in the middle to upper-middle class. 

• More affordable fees for clients with those with moderate asset holdings. 

• Provide financial planning and investment advice. 

Cons 

• They don’t actively manage your money.

• A narrower investment and financial planning scope compared to wealth managers.

Financial Advisor or Wealth Manager – Which Is the Right Choice for You?

Do you have substantial wealth exceeding $1 million in liquid assets? Go with a wealth manager. If you earn less than $200k per year and you’re looking to plan for retirement and secure your financial future, get advice from a financial advisor. Regardless of your current asset holdings, wealth managers and financial advisors are key individuals to help you grow your money in all market conditions.