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What Is Wealth Management?

By MP Dunleavey · April 28, 2022 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is Wealth Management?

Wealth management is a comprehensive approach to financial management that typically includes a range of services, from investment advice to estate planning to legal services and more.

While wealth management is typically used, as it sounds, by wealthier individuals — and some wealth management firms do require a minimum investment amount — anyone can consider wealth management, even if they’re not technically considered “high net worth,” as the term goes. The main qualifier is the desire to grow your wealth, set priorities, and plan ahead.

Here’s what you need to know about this next level of financial advice, and how it might be useful to you now or in the future.

How Wealth Management Works

What is wealth management and how does it differ from ordinary financial advice? While a financial advisor is typically a licensed individual who works one-on-one with clients to develop a long-term financial plan — often focused on estate or retirement planning — a wealth management firm takes a more holistic or 360-degree approach to their clients’ needs.

A Team Approach

A wealth manager typically coordinates a team of professionals — e.g. a lawyer, accountant, tax specialist, broker — to address the range of issues that wealthy individuals must handle in their day-to-day lives and in the future. This might include succession planning, wills and trusts for their heirs, tax planning, portfolio management, and more.

In some cases, when a client requires a specialist in a certain area, the wealth manager will hire an outside professional with the necessary expertise.

Specific Credentials

There are numerous licenses, designations, and credentials in the financial advisory space, but there are three professionals that undergo a more rigorous training and qualification process (and in general uphold the fiduciary standard of putting their clients’ needs first) :

•   CFA, or chartered financial analyst. A CFA is considered a prestigious professional designation, which is only obtained after four years of work experience in investing or a related field, and passing three six-hour exams that cover a range of financial, economic, and accounting-related topics.

•   CFP, or certified financial planner. A CFP is a fairly common industry designation (many financial advisors have it), and these professionals must meet the high bar set by the Certified Financial Planner Board of Standards. A CFP candidate puts in as much as 1,000 hours to complete the required coursework and the exam, in addition to related work experience and meeting ethical standards.

•   PFS, or personal financial specialist. A PFS is a certified public accountant (CPA) with expertise in all aspects of wealth management, including retirement and estate planning, investing, and insurance. This credential demands three years of work experience, and the candidate must commit to high ethical standards and continuing education.

An Integrated Strategy

One key aspect of wealth management is understanding how different aspects of a client’s life intersect, and making sure the players on the wealth management team are working in concert to achieve the best results. Tax planning alone, for example, might impact the securities bought and sold in an investor’s portfolio, their estate plan, business choices, and more.

By using a more integrated strategy, wealth managers aim to achieve the best possible results.

Example of Wealth Management

Imagine a couple who owns a large property and two homes. They have grown children and young grandchildren. This couple has $2.5 million in investable assets, but they’re getting older and they want to help pay for their grandchildren’s college tuition, in addition to their own long-term care needs.

Their wealth management team could help run the numbers and evaluate different scenarios for a long-term plan that would make the most sense for meeting those priorities. The couple might want to put their property in a trust to minimize taxes, sell one of their homes to reduce costs, set up tax-advantaged education accounts for their grandchildren — or take a different route.

The professionals convened by the wealth management firm would be selected based on the expertise needed for this specific case. Another family, with different goals and concerns, would be met with a team that reflected their own unique needs.

How Much Does Wealth Management Cost?

Wealth management fees are often charged as a percentage of assets under management or AUM. A common fee is 1% of AUM per year, industry surveys show, but wealth managers can charge more than that — especially for smaller clients. The higher a client’s AUM, the lower the annual fee, generally speaking.

It’s always important for investors to ask how they are paying for different services, as the fees charged are not always stated up front. Sometimes they are bundled together and deducted from portfolio returns; sometimes there may be an itemized list.

Sometimes a firm might have a commission-only fee structure, or the wealth manager might charge a flat fee for their services. Because wealth managers draw upon a range of professionals, some from within their company and some outside it, asking what you’re being charged is important.

Is Wealth Management Worth It?

Wealth management is not for everyone, but many people might benefit from a more integrated approach to financial planning. It can be costly, but a wealth manager can also create efficiencies by helping to manage taxes, account fees, and other expenses.

Also, the aim of wealth management is to protect and grow your wealth. So while this type of service might cost more than a run-of-the-mill financial advisor, it offers the potential for long-term growth.

The Takeaway

Wealth management is considered the upper tier of financial advisory services. But while it’s most often available to affluent individuals, wealth management is something that many investors can consider now or as they grow their own wealth.

Wealth management tends to be more integrated or holistic compared with general financial planning — and that approach offers the potential for long-term efficiencies as well as growth opportunities. Wealth management teams often cover investment advice, tax expertise, estate planning, and more.

To get on the path to growing your own wealth, open a brokerage account online with SoFi Invest®. You can buy and sell stocks, exchange-traded funds (ETFs), fractional shares, IPO shares, and even cryptocurrencies. It’s easy and secure, and you can build your portfolio from the comfort of your own phone (or computer). Get started today!


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