The financial industry is proving to be better at coming up with new names for its products and services than bartenders who concoct new drinks. In the industry’s defense, there are probably more ways to combine investments and financial plans than there are liquor and soda. But does there really need to be both a “private wealth manager” and a “financial planner,” for instance?
Many would argue in the negative and say private wealth management is just a fancy term for financial planning that makes the manager in question sound more upscale. Like Blanton’s is to Jim Beam; at the end of the day, they’re both still whiskey. But the other side of the debate may say the flavor each leaves on your tongue, and the dent they leave in your wallet, are far from interchangeable.
Likewise, the services and experience of working with a private wealth manager can be wholly different from that of working with a financial advisor.
What Is a Private Wealth Manager?
Private wealth managers are financial professionals who focus on serving the needs of high-net-worth individuals. This often includes providing a broader range of services than traditional financial planners offer.
“A private wealth manager will address more complex client situations like advanced charitable planning, multigenerational estate planning, business succession, family governance (and) advanced portfolio tax management,” says Nathan Imboden, a certified financial planner who serves as vice president and personal CFO at Questmont Strategic Wealth Advisors. “This is done through a well-coordinated team of professionals,” which can include legal advisors, tax advisors and business consultants.
A private wealth manager will spend more of her time interacting with these other professionals on her client’s behalf. There’s more behind-the-scenes work when you’re a private wealth manager, but it will help you optimize the time actually spent with your client, Imboden says.
Private Wealth Manager vs. Financial Advisor
“There is no strict definition for financial planners and wealth managers,” says Zach Ciampa, a certified financial planner at John Hancock. Therefore, there is a lot of overlap between the two roles and the services each provides.
That said, there are some distinctions between the two. Here are some key differences between private wealth managers and financial planners:
— Private wealth managers tend to deal with higher-net-worth clients. A financial advisor may have clients with $100,000 to $5 million in assets, for instance, while a private wealth advisor may work with clients who have upward of $20 million.
— Private wealth managers often become more involved in asset management. “Wealth managers will usually have clients’ assets under their management and actively handle their portfolio,” Ciampa says. Financial planners, on the other hand, are more likely to outsource asset management to other professionals.
— Private wealth managers provide a broader range of services. “While both professionals provide basic financial advising services like goal planning, investment management services and some limited tax and estate planning, a private wealth manager takes a much deeper, comprehensive and more proactive role (with) a client’s wealth management,” Imboden says.
Private Wealth Manager vs. Financial Planner Fees
It’s difficult to provide a fee comparison for private wealth managers and financial planners. The fees charged often vary with the services provided, which can vary greatly from one professional to the other. What can be distinguished is how private wealth managers and financial advisors typically charge their fees.
“Private wealth managers will typically assess fees based on assets under management (AUM),” Ciampa says. AUM is the money and investments you keep with your private wealth manager. For example, a private wealth manager may charge 0.5% of AUM for a $10 million account, equating to an annual fee of $50,000. Often, AUM fees are assessed on a sliding scale, with larger account balances qualifying for lower fee tiers.
“Most firms like to break that annual amount into four quarterly payments,” Ciampa says. In the example above, that would come out to $12,500 per quarter.
Financial planners tend to be more varied in how they charge their fees. They may use the AUM model, too, or they may use a different fee structure. Financial planners may charge a one-time flat fee, such as $2,000 for a comprehensive financial plan, or they could charge an hourly fee, such as $250 per hour, Ciampa says.
The important point when evaluating private wealth manager and financial planner fees is to determine whether the value you’re receiving is worth the price you’re paying. “Bottom line, clients should always ask how they will be charged for the services and/or products they’re looking into,” Ciampa says.
What Makes a Successful Private Wealth Manager vs. Financial Planner?
Given the distinction between their two roles, a successful private wealth manager requires a different set of skills than a successful financial planner needs.
How to Be a Successful Private Wealth Manager
“Both professionals need to be able to prove to clients they are capable of helping them with their wealth planning needs, but the private wealth advisor also needs to prove to other experts they are capable of taking the lead in the wealth planning process,” Imboden says. “This requires advanced skills in managing a team, rather than just managing a client relationship.”
Wealth managers also need more investment management expertise. “It’s important for them to achieve an appropriate risk-adjusted return,” Ciampa says. “They must manage wealth in an effective and prudent manner.”
How to Be a Successful Financial Planner
Since financial planners don’t often directly manage their clients’ investments, their set of skills can lie elsewhere, such as in understanding their clients’ goals and using them to create a plan that will help clients achieve those goals. “It’s crucial to lay out all options for meeting those goals, while also trying to account for as many variables as possible,” Ciampa says.
Whether someone is a financial planner or private wealth manager, the core of the job remains the same: They are there to help clients achieve the financial future they desire. The only difference between a financial planner and private wealth manager is the level of involvement they take in the process.
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Update 07/15/21: This story was published at an earlier date and has been updated with new information.