What is a wealth advisor and what do they do?
A wealth advisor is one type of financial advisor who focuses on managing the finances for ultra- and high-net-worth individuals and families. While wealth advisors have comprehensive knowledge of financial issues, they specialize in planning and strategies for the wealthy.
Here’s what else you should know about wealth advisors, including the pros and cons of using one and when you should consider hiring one.
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What is a wealth advisor?
A wealth advisor is someone who manages the issues surrounding your wealth. A wealth advisor focuses on obvious issues such as growing your wealth, but also maintaining it, setting up tax-advantaged strategies for your wealth, passing your wealth on to a next generation and many more topics related to wealth management. Wealth advisors typically charge a fee as a percentage of your assets, for a comprehensive package of services and benefits.
What do wealth advisors do?
Here are some typical services offered by wealth advisors:
- Growing wealth
- Growing your wealth is a key feature of a wealth advisor, ensuring that your assets are diversified and that you’re set up to prosper in the future.
- Maintaining wealth
- It may be often overlooked, but maintaining wealth is another key function of wealth advisors, ensuring that you’re not losing ground in your finances.
- Estate planning
- Estate planning ensures that your money goes where you want when you pass, while minimizing the effects of related issues such as taxes.
- Tax planning
- Wealth advisors help clients minimize the tax issues surrounding their wealth, including arranging strategies that help avoid or defer taxes.
- Charitable giving
- Charitable giving also forms a key focus for many wealthy people, and structuring it correctly can make it more effective and maximize any tax benefits.
Of course, many wealth advisors may work on other key areas such as retirement planning or financial planning, but the bigger focus is on issues surrounding wealth management.
Pros and cons of wealth advisors
Wealth advisors can prove helpful in managing your wealth, but you’ll also want to consider some potential downsides of using one.
Pros
- Comprehensive wealth management: A wealth advisor typically provides all kinds of advice and planning around wealth issues, or can call in other specialized experts where it makes sense.
- Focused on high-net-worth issues: Issues central to high-net-worth clients are the core specialty for wealth advisors, meaning more focus on growing and keeping wealth than on budgeting, for example. Of course, they’ll still be able to handle issues such as retirement plans, including 401(k)s and IRAs.
- Specialized expertise in complex areas: A wealth advisor focuses on areas that are most pertinent to wealthy clients – for example, accessing special tax credits for investment – and less on those a more traditional advisor may offer.
- May also hold a CFP or other designations: A certified financial planner (CFP) designation is a mark of rigor in the financial industry, and it also charges holders with a fiduciary duty to their clients, meaning they’re supposed to put your interest first ahead of their own or their firms’.
- Motivator during lean times: A good advisor should help you stay on track during tough times, helping you make smart long-term decisions that benefit your wealth.
Cons
- Fee-based approach could be pricey: If you’re paying a wealth advisor as a percentage of your assets, it could become expensive over time. While the arrangement helps align the advisor’s interest with your own, in many cases, you’ll end up paying more for the same advice that you received when you had less money.
- Requires significant assets: Hiring a wealth advisor may make sense when you have more assets, and many advisors won’t accept new clients unless they can bring a minimum amount of assets to the table.
- May still need expertise on niche topics: While wealth advisors may provide comprehensive advice on wealth issues, from time to time you may still need to hire another advisor on truly niche topics such as obscure kinds of trusts.
- May not be a fiduciary: Having a fiduciary on your side is important when they’re dealing with a lot of your hard-earned money. But wealth advisors might not be fiduciaries, though you should insist on having one.
When to get a wealth advisor
A wealth advisor can be helpful at many different points in your life, though you’ll need a chunk of money for it to start making sense.
Since wealth advisors focus on issues surrounding wealth, you’ll need some of that for their more specialized expertise to really be worth it. If what you’re really after is investment management, then the best robo-advisors can be a place to begin and grow your nest egg.
Many wealth advisors have a minimum amount of assets that you’ll need before they’ll work with you. A typical figure might be $500,000, with some advisors offering service to those with $250,000. But plenty of wealth advisors will require $1 million or more.
If you have other complex situations surrounding your money, it can make sense to call in a wealth advisor. Planning your estate can be one of the trickiest, and could benefit from the expertise of someone who’s done it all before and knows the traps and pitfalls to avoid. But tax and other legal issues are places where a wealth advisor can really earn their fees.
Finally, it can make sense to get a wealth advisor when your financial affairs simply become too much to handle. As your wealth grows, it may exceed your ability to manage effectively. So calling in a hired hand who can take care of the more difficult work may free you up for the things you want to focus on.
How to find a wealth advisor
Finding a wealth advisor is serious business. You need someone you can work with and trust, and someone who understands your needs. So if you want to find the right advisor, you’ll need to treat the process like an interview and research multiple potential applicants.
You can ask family and friends for their recommendations, and word of mouth is a great way to begin the process. But you’ll want to go further, including speaking to potential advisors and asking questions about their services before determining whether you want to work with them. Here are the top tips you need to know for finding the right advisor.
Finally, if you’re looking to find a financial planner, Bankrate offers a financial advisor matching tool to match clients with advisors in minutes.
