How to Pick a Wealth Manager

Wealth management is an ancient practice. People have been hiring financial advisors for millennia – in Ancient Rome, newly appointed government officials needed information about how to manage their newfound wealth, so contacted people to lend out their money responsibly. The difference between the wealth managers that existed over 2,000 years ago and those that do now is that the management landscape is infinitely more complex. It isn’t as easy as sitting down and only giving money to people you trust – there are many barriers to productive wealth management in the form of opportunity costs, mismatched risk awareness and ethical dilemmas. If you’ve recently come into some cash that you want to preserve, or even if you’re thinking of your future and retirement, picking a wealth manager can be one of the most important decisions of your life.

Do you really need it? 

According to Jason Butler, who writes for the Financial Times and wrote the book Financial Times Guide to Wealth Management, much of wealth management is overpriced and ineffective. There are many very rich wealth managers out there who simply rely on their clients not understanding what they are doing. A wealth manager should not only handle investment, but the tax issues that come alongside it; inheritance planning; how to structure the management plan in relation to mortgages and, of course, pensions. There are a million different ways you can invest your money, but what matters when choosing a wealth manager is if they can take your best interests at heart, listen to your lifelong plan, aims and aspirations, and work with you to achieve those.

That’s why, when you’re thinking of picking a wealth manager, you should think about what you actually need from them. If it’s just to increase your wealth, think about why. What do you want to achieve with that wealth in the long run? Do you want to spend it all before you die or leave it to family members or charitable causes and organizations? Once you have this information down, only then can you decide if you need wealth management or if simply putting it into assets or a stock index suits you better.

Keep in mind the teachings of the renowned investor John C. Bogle, who says that for the average investor in the stock market, there is a huge eroding effect on wealth, due to money managers’ fees and tax inefficiencies. Instead, he argues, a perfectly reasonable investment is in capitalism itself – stock indexes, which despite the occasional big blip, constantly grow. The best thing about them is that you can just leave your money in the same place – to quote Warren Buffett: “For investors as a whole, returns decrease as motion increases.” However, that approach isn’t for everybody – some people need help reaching specific financial and life goals – and this is where a wealth manager comes in.

The rate card 

Wealth managers should give you a rate card when you first meet with them. This contains all the information you need about their charges. In a world where the performance of investments is very difficult to compare with each other, the hard numbers in a rate card are a saving grace. You need to give them at least some of your time, so they should initially make clear what they need from you – how much time somebody that is minimally committed needs to spend, as well as what fees you will have to pay. It’s a good idea to pick a firm that charges irrespective of how the financial products and investments that you choose are arranged, while keeping an eye on average fees.

The Retail Distribution Review in 2013, introduced reforms in the UK that influenced financial institutions across the globe. It stops commissions being taken from the providers of financial products but, when they don’t provide these products, wealth managers often take a fee on assets invested in the form of a percentage. This can cause them to push you towards investing more, as they profit more from that, so if your wealth manager offers a planning service that’s distinct from product sales, you can feel more comfortable around them.

Dealing with the pros 

To the layman, all wealth managers are professionals, but you should still look for industry accreditations. Don’t go with someone who isn’t a member of the Institute of Financial Planning. On top of that, other signs of prestige, like being invited into the President’s Club at Morgan Stanley, should be considered.

However, just because your wealth manager is a member of a prestigious association doesn’t mean they’re different to all other businessmen – don’t be afraid to ask for as much information as you need regarding fees. You should also even try to haggle if you’re good at negotiating. A wealth manager needs to demonstrate to you, their client, that they are worth the extra fees. Why should you go for them if you can just see a portfolio online and go for a low-maintenance portfolio using a stockbroker instead (often much cheaper). If your wealth manager is just offering you a standard selection of funds (often the most popular ones), they won’t be worth the fees and should instead just be used for planning consultations. You should be prepared for tough honesty with a financial manager, as only then will you be able to make informed and reasonable decisions about your wealth.

Other wealth managers will be able to create a portfolio for you that is creative and fits with your level of accepted risk. There will also be other things that they need to consider – if you’re Muslim or are financially linked to any Islamic individuals, you will likely want to make an Islamic investment – which is a type of socially responsible investment that fits in with Islamic philosophy and adheres to Sharia law, whether that interpretation is Sunni or Shia. You might also care about the environment, in which case you will be able to invest in environmentally responsible companies – ditching oil firms in a portfolio and even moving towards investing in companies that deal with renewables or environmentally responsible agriculture.

Lastly, your wealth manager should be somebody that you trust and with whom you feel comfortable disclosing anything. Many wealth managers have to help their clients with issues such as addiction or divorce, as these sensitive events can greatly impact personal finances.

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