Is wealth management a fancy marketing buzz word or an essential service for investors?
Wealth managers can cover the work carried out by independent financial advisors, fund managers, stockbrokers and private banks.
Regulator the Financial Conduct Authority took a head count of wealth managers and found almost 2 million advisers handle £600 billion of assets for their clients.
Most clients look to a wealth manager to provide added value by offering insight and structure to their finances.
But this advice can come at a cost if the right relationship is not struck up.
Seven questions to ask about wealth management
To help determine if a wealth manager is worth the money, here are some points to consider:
- Benchmark your portfolio – Give honest answers about why you are investing and your expectations for the future. Then think about if you can achieve these goals without help.
- Products or advice – Talking about your finances and then picking products for you to manage is not advice, it’s charging a fee for something you can do yourself. Wealth management means sorting out a financial plan before picking products and then selecting the right products for the plan.
- Independent or restricted – Independent means impartial, whole of the market advice and unbiased advice, but a restricted adviser is limited in scope to a product or provider. The FCA wants to change the rules so the same adviser cannot offer independent and restricted advice depending on the product or service. Make sure you know so you get the best deal for you.
- Cost benefit analysis – Make sure you know exactly how much the wealth manager is costing you and that the expense is much less than the financial gain from taking the advice. Fees are sometimes wrapped in jargon – not only will you pay for time but add-ons like product, transaction and dealing fees.
- Play the percentages – Percentage fees are not fair. Some customers subsidise others and the cost of managing others is less. Make sure you are paying a fair amount for the services you use.
- Know your adviser – Firms make more money from advice teams servicing their client banks rather than individual advisers giving personal advice to a smaller number of customers. Are you paying a wealth manager for a bespoke service but find you are diverted to a one-size-fits-all solution?
- Measuring performance – Set your own goals and monitor your progress. A good way of doing this is with a lifetime cashflow analysis
Wealth management is about collaborating with an expert who can add value to a portfolio. Investors need specific goals and a well-worked route to reach them.