What Is Wealth Management? (With Definitions, Strategies and Examples)

Wealth management firms offer a variety of financial services directed at the investment needs of affluent clients. Wealth management and wealth managers help clients grow their wealth, protect their assets and reduce their financial risks. It takes years of education and experience for a wealth manager to learn and understand financial markets and investment strategies. In this article, we discuss what wealth management is and how it works along with strategies and examples of wealth management.

Key takeaways

• Wealth management uses a variety of investment and financial services to address the needs of affluent clients.

• Wealth managers create customized strategies to increase a client’s worth, protect their assets and reduce financial risks.

• Wealth managers charge a fee, usually a percentage of the assets they manage for a client.

• Wealth managers are also known as “wealth management advisors.”

What is wealth management?

Wealth management, also called “private wealth management,” starts with a consultation with an experienced financial advisor, or wealth manager who understands how to manage wealthy clients’ finances. They also consult with the client's attorney, accountant and insurance agent, then, design a customized strategy to align with the client's goals and how much risk they are willing to take. Wealth managers propose investments according to the strategic plan and work closely with their clients to understand their assets, finances and goals.

Related: What Are the Top Certifications for Wealth Management?

How does wealth management work?

People who have high levels of wealth, or “worth,” frequently require services beyond the scope of a typical financial advisor. The higher the worth, the more complicated the investment portfolio, tax situation and business interests are.

Wealth managers can access a large number of financial products and services that are not available directly to individuals. They use these tools to form custom solutions for each client. Clients may opt to work with a private wealth manager, a wealth management consultancy firm or a bank’s wealth management department.

Wealth managers charge a fee, usually a percentage of the assets they manage for a client. Usually, the higher the asset value, the lower the percentage fee charged. Fees vary by company but all wealth managers earn more as they manage more assets.

Clients with extremely high worth may prefer to establish a family wealth management office exclusive to them. This could be a single-family office or an office dealing with several families’ financial affairs.

Wealth management services

Wealth management evolves as the client's worth grows and different services are used. Investment planning is considered the basis for most wealth management protocols.

Wealth management services include, but are not limited to:

• Investment management and planning including hedge funds and money markets

• Retirement planning

• Legal services

• Estate planning

• Accounting

• Tax services and planning

• Charitable giving plans

• Education planning for family members

• Business planning

• Debt management

• Health care and Social Security management

• Insurance services

• Income protection

• Asset preservation

Where do wealth managers work?

Wealth managers work at the following places:

Wealth management firms

Companies that offer wealth management are called by many names: brokerage firms, financial advisories, asset management firms or portfolio services. As a wealth manager, you work as part of a team of financial advisors who help several clients. Generally, the higher the wealth of the client, the more people are on a team to advise them.

Large financial institutions

The larger banks have wealth management divisions serving high-net-worth individuals. Most clients work directly with one wealth manager who is supported by a larger team of experts.

One-on-one with their clients

Often people with lower wealth values choose to hire private wealth managers who work one-on-one with them and are not part of a larger firm.

Wealth management strategies

Wealth managers use various strategies to help affluent clients manage and plan for their financial future. They include:

Income generation

The first task of a wealth manager is to find new ways to generate income for their clients. Today, many have acquired wealth due to inflation and an increase in business opportunities. They often require help to remain among the top net-worth individuals.

A wealth manager must leverage their experience with investments to bring their client additional income. They may suggest investments in hedge funds and private equity funds exclusive to people who have high wealth.

Asset protection

High-net-worth clients are frequently exposed to the risk of legal action and lawsuits from individuals or governments. Risks might include marital disputes, successions by heirs and disagreements in their business dealings or properties. When this occurs, they might be liable to pay out expensive compensation.

Part of the responsibilities of a wealth manager is to identify ways to reduce this risk. They should have in-depth knowledge of how to move money into alternative situations that are both legal and protected. For example, they may suggest using offshore financial institutions to favorably affect the way money and income are taxed or by setting up trust funds for their client’s children.

Tax management

When a client has large amounts of money, paying a large amount of tax can be inevitable. However, an expert wealth manager should understand how to position wealth to make paying taxes as efficient as possible so that the taxed amount is minimized.

Taxation laws can be extremely complex when the income level is high. The wealth manager must select the best options for taxation and advise on inheritance, business or personal tax matters.

Examples of wealth management

To understand how wealth management works, here are some examples of this service in action:

Change in life

Real estate portfolios are frequently inherited by spouses or children of the deceased. The inheritor may not have experience with property investments. Wealth management can help by giving them access to real estate professionals, attorneys and accountants. This team can manage the properties and assist with transfers of names and mortgages. Advisors can design a plan that will bring an income from the properties while minimizing inheritance and property tax.

Working professional

People who work full time may not have the capacity to manage their investments so they are spread over several brokers. The tax and future investment strategy can be complicated in these circumstances.

A wealth manager could consolidate the investments to one broker so management is easier. They can, then, define a financial plan to meet the client’s needs in the short and long term. The client will be educated about the stages of the plan and how it will change over time to grow their finances.

New retiree

People of retirement age often have significant investments accumulated over a lifetime. A wealth manager can advise how to ensure these investments provide a reliable stream of money and make sure the client thoroughly understands their financial needs over their retirement.

The manager will analyze the options and advise on the most lucrative options to minimize risk and allow the client to have the lifestyle they want with the security of knowing their assets are managed competently.

Related: Q&A: Careers in Wealth Management