Wealth Management

The ultimate guide to understanding what makes great wealth management

Grow your assets, add a systematic approach to investing, and concentrate on other things in life

You’ve heard it countless times before.

If you take care of your money, your money will take care of you.

You might start off managing your own assets.  But as your assets grow, you could start needing help.  Perhaps you have a first child.  Or you purchase an investment property.  Maybe your business starts to grow and all of a sudden you find yourself immersed in work.

A study by research firm Wealth-X found that 57% of ultra-high-net-worth individuals listed business as their top hobby.  Philanthropy, sports, and finance came in second, third and fourth.

But remember that this work doesn’t actually help you manage wealth or enjoy it

Everyone learns that you can always make more money.  However he the one thing you cannot make any more of is time.

Time is a precious commodity.  Rich or poor, everyone is given 24 hours a day.  But once the time is spent, it is gone.  If you want to be rich, look to enjoy your time

 

How you spend your time is completely up to you. You are only limited by the number of HOURS you have.

What is wealth management?

Great wealth management is a service that gives you your time back.  It gives you confidence in your investments, the money you can spend, and the time to spend it.

This might sound simple enough. But wealth management actually brings many useful benefits.

Also, people might have an idea of what “great” wealth management means, but that’s just the first step.  The real challenge is identifying the right wealth manager that can fulfill those needs.

You don’t walk into a bar and date the first person you see.  In the same way, you don’t walk into a bank and pick the first financial advisor you find.

If you’re struggling to understand what makes a good wealth manager, this article will walk you through what wealth management is and how to find a great wealth manager.

What does wealth management involve?

People often disagree on what wealth management actually is.  That’s because it can include so many different services.  One British wealth manager in Hong Kong, David, was even asked by his client to fly in smoked salmon from a plant in Scotland.

But most people agree that wealth management involves two key areas.

1. 1. Investment management for wealthy individuals or families
   2. Related financial services, such as advanced planning, risk mitigation, estate planning, tax planning, and personal business succession

An example of wealth management services offered by J.P. Morgan

Wealth managers can act as private advisors

A relationship with a wealth manager is much like a relationship with a close friend. Their job is to understand how you and your family want to live.

Many wealth managers know their clients intimately. What are their client’s goals?  How about their needs, fears, and concerns?  While many individuals may be concerned about sharing such details about their lives, they quickly learn that the best wealth managers act more as advisors and close friends. In fact, this level of trust is required for a wealth manager to give good advice.

This makes wealth managers especially good private advisors. Not only can the best advisors help you invest your money, but they can also act as a sounding board for how you want to spend your money and time.

Wealth managers can work with $500,000+

There is a common misconception among people that wealth managers will only work with people who have >$10 million in assets.  This myth has been propagated by large wealth managers who may still only work with large clients.

Some large companies like J.P. Morgan and UBS have high minimums of $10 million or more for wealth management

However, not ALL managers have a $10 million minimum. Some wealth managers recognize that client assets will grow over time.

These managers take the long view.  And thus, they’re often happy to work with people who have just $500K – $5 million in investable assets.

Even if you start smaller today, your assets can grow significantly over time.

Here, you can see the key difference between larger investment banks and smaller independent managers.  Large banks tend to place very high minimums on investments. They often lack the ability to serve smaller clients.  However, managers who work for independent firms generally have the flexibility to work with whoever they believe are good long-term clients.

Wealth managers can help you take the emotion out of investing.

One of the greatest fears people have is losing money in the market. Think about it for a moment. Imagine your hard earned money sitting in a vault. Now imagine 20% of it vanishing in the blink of an eye. Perhaps a flood comes and wipes out half your savings. Or thieves make off with the cash. Does that sound scary?

But this happens all the time in the stock market.

Since 1945, the stock market has dropped 20% or more twelve times.  There have been an additional 22 times where the market has fallen by 10% or more.  Yet over time, the stock market is a wonderful investment as long as you stay invested.  $1 invested in the S&P 500 in 1945 would have turned into $15 today after inflation!

The question is whether you could have stayed invested all that time.

One of the greatest benefits of good wealth managers is that they can help you stay invested during tough times.  Many people become tempted to sell at the bottom of the market. They lose not only from the market going down but also from missing the market on its way back up.

When markets fall, these moments actually present the best times to invest. During the 2009 financial crisis, Citibank stock dropped below $1 for its first and only time.

At the time, there were good reasons for pessimism.  Bear Stearns had just collapsed the previous fall and investors were worried that Citibank would do the same. Some investors, however, sensed the opportunity for outsized returns.  Just four months before, Warren Buffett had made an outsized investment in Goldman Sachs.  And anyone who had invested in Citibank at its nadir would have seen their money multiply fourfold in very short order.

So one key role of great wealth managers is to help you navigate the emotional investing rollercoaster.

You have to know when to fold them. But you also need to know when to hold on.

Investing is a mental game. Having an advisor on your side can help you overcome emotional pitfalls and invest for the long run.

Wealth managers can help you with taxes

The best wealth managers should be able to view your portfolio in its entirety. This means they should also be well-versed in both federal and state taxes.

According to the OECD, the US government collects 28% of the country’s GDP as tax revenue. Put another way, one of the largest items you will spend your money on?  Taxes.

In other words, good tax advice will help you go far.

Ignoring taxation issues is like ignoring the elephant in the room.  Yet many high net worth individuals and families don’t fully understand the tax implications of every financial action. They assume that taxes will eventually work out in the end. What’s due to the US government is due to the US government. There is no other way.

Or is there?

There are smart and legal ways to reduce taxes.

Taxes provide one of the greatest opportunities for wealth managers to show their value. State and local taxes are an excellent example.

“In this world nothing can be said to be certain, except death and taxes“ – Benjamin Franklin

For instance, anyone moving to Maryland will quickly find that the State levies a 3.5% local income tax.  What’s more, the state also collects up to 16% in estate taxes.  By simply moving across the Potomac River to neighboring Virginia, a retiree will discover that, to the State, he or she will pay zero local tax, and zero estate taxes. For wealthy families, the savings can amount to the $100K’s or millions of dollars!

Of course, some people are unwilling to move their state of residence.  But every family deserves to know how much it would cost to live in a certain location.  Some people may find it worthwhile to move 15 minutes away into the next state in order to save $200,000 in taxes!

Can accountants help you reduces taxes too?

Answer: SOMETIMES.

The best accountants know how to use deductions to reduce your taxable income.  These include many esoteric items, such as moving costs, home offices, and loss harvesting.  In fact, many wealth managers will hire CPAs to help them keep updated on recent tax changes.

However, accountants are trained to look at taxes from the bottom-up.  They tend to practice in only one state or municipality, so they are often unaware of other methods available to high net worth individuals and families to reduce taxes.  It’s the wealth manager’s job to look at your taxes from a more holistic view.

Example advice for someone working in Washington DC and living in Maryland

• Accountant: You can use your DC taxes to offset $xx Maryland taxes you owe.
• Wealth Manager: By reincorporating your business in Virginia and moving residence, you can eliminate $xxx of state taxes altogether

Wealth managers can also help you navigate taxation issues in estate planning, something many CPAs don’t have direct experience with.

Rewards of great wealth management

It can be difficult to find the right wealth manager. There’s so much information on the market, and so many advisers looking for your business. With the advent of Roble advisors and other DIY methods, becomes even more difficult to identify what type of wealth management is right for you.

Once you find the right wealth manager or Robo advisor, however, the rewards can be extraordinary. Here, we explore five key ways that wealth management can benefit you and your family.

1.  It adds a systematic approach to investing

In the United States, the majority of high net worth families created their own wealth.  Even those who inherited their wealth tend to work at making their assets grow.

You might have started small.  And in the beginning, your assets were probably easy to manage.  But as your assets grew and your financial situation became more complex, you started needing a more systematic approach to managing your wealth.  And then what?

Wealth management adds this professional layer to any investing. Even if you are able to invest well by yourself, having a wealth manager review your entire portfolio can help you balance your investments and identify any risks.

Most wealth managers emphasize clarity in decision-making

How does a systematic investing approach help?

Imagine, for a moment, that you want to build a house. How would you start?

You would probably first explore some very important questions. Who will live there?  How many people will it hold? What’s your budget?

Once you have all the major questions answered, you would start planning how to build a house. Where would you build the walls?  Who would you contract to do it?

And only when you’re confident about the final plan, would you start building your house.

But imagine for a moment building a house without a plan. You might start building a wall here, and then decide you don’t like it.  Then you might start digging a hole for the basement, and then realize it’s in the wrong place. That’s what building a house without a plan looks like.

Doesn’t that sound silly?

Yet many families don’t realize they treat their wealth the same way. Even if you have a substantial net worth, you still need a plan about how to manage it.  Investing here and there without a master plan is like building a house without a blueprint.  Things will end up everywhere!

How does wealth management help?

Wealth managers are trained professionals to help bring a systematic approach to the management of family wealth.  It is their job to help you fully visualize your goals and to create a plan for your wealth that helps you reach them. This systematic approach helps make sure that nothing is left out.  Do you have enough set aside for a major health contingency?  Or what about long-term care options?

These are all questions that a good wealth manager can help you address. One step at a time.

2. It protects you against worst-case scenarios

Question: “What worries you most?”

I often ask this question to people seeking advice on how to manage their wealth. The answers are often straightforward.

Common answers:

• I’m afraid of running out of money in retirement
• I’m afraid I won’t be able to provide for my family
• What if something’s happens to me?  Will my family know how to manage?

These questions often linger in the back of people’s minds for decades.  People lose countless hours of sleep mulching over these issues.  Yet, these are actually issues that you can solve!

Are you worried about running out of money? Buy the right inflation-indexed annuity to ensure lifelong income.

Want to make sure your family is provided for? Take a life insurance policy on yourself!

Great wealth managers can help you protect against worst-case scenarios. Many people spend their lives worrying about financial issues that are actually solvable.

Remember that your savings are assets.  Not liabilities.

That means wealth managers also help you manage risk

When people talk about managing worst-case scenarios, they also often talk about risk management. It’s hard to think of one without the other. That’s because managing worst-case scenarios is actually a form of risk management.

Great wealth managers should view your portfolio as a whole.  If you are a business owner, for instance, a wealth manager will have to include your ownership as an asset.  He or she will then have to see how your other assets (house, savings, investments) fit it.  Is your business a high-risk one?  Or does your business operate in a mature market with lower risk?

These questions are asked by a new breed of financial advisors: holistic wealth managers.

Holistic wealth managers examine your entire portfolio, not just single investment accounts.

Holistic wealth managers are there to examine your portfolio from top-down perspective. These insights can help protect you against worst-case scenarios and help mitigate risk.

3. Wealth management helps you stay organized

Think for a moment about the complexity of your assets. Your financial life may have started off quite simple. You opened your first bank account. Started your first job. Invested your first bonus. It’s easy to keep track of everything at first

But then things start to get complicated

This isn’t necessarily a bad thing. It’s just how life works. Being financially savvy, you might have opened a savings account to generate interest. Perhaps you applied for a credit card too in order to start building a credit history.

Soon, you might have a car, a house… maybe even a small business. And as your asset-base grows, the complexity grows right along with it.

You might be able to manage for a while, but eventually, you probably want some help.

Besides helping you create goals and manage risk, a wealth manager can help you stay organized.  Based on our experience, high net worth families often have 20-40 different accounts.

A typical family of four might have these:

• Checking/savings accounts: 2-3 joint accounts, 1-2 individual, 2 for kids.  5-7 total
• Business accounts: 2 checking accounts, 1 savings account.  3 total
• Investment accounts: 2-5 accounts
• Credit cards: 3-7 cards
• Others: 401(k), IRA, Roth IRA, CD, money-market, 529 college plan, etc.

This doesn’t even include real estate investments, cars, second homes, time-shares or collectibles!

Why keep track of accounts?

When it comes to managing your money, a good organization system pays off. We teach our children to pay credit card bills on time to build their credit score.  Yet it’s easy for us to overlook details too.

Having the right systems in place to track and manage your finances can help you identify weaknesses and take advantage of strengths in your assets.  Knowing which investments are producing the best returns for you, and knowing which accounts have the highest risk are all keys to having a healthy portfolio.

Professional wealth management can help you keep track of your various investments and accounts. Your money is important, no matter which accounts you put it in.

4. It provides peace of mind

How often do you worry about money?

It turns out that even the wealthy worry greatly about money.  According to a survey by Personal Capital, 51% of affluent investors worry about being financially secure in retirement.

51% of affluent investors worry about being financially secure in retirement.

Wealthy families also feel the same pressures.  A survey conducted by the Spectrem Group, an Illinois-based financial research firm, found that even 20% of ultra high net worth investors worried about running out of money in retirement.  That means even people who have more than $20 million in retirement often still worry about running out of money in retirement!

Are you worried about running out of money?

It’s a fact.  Many wealthy individuals worry about running out of money.  There’s even a sense of shame admitting this.

They feel they should have enough… that their worries are irrational.  Or even worse, they feel that admitting their worries makes them sound entitled.

Even the top searches on Google show that the wealthy worry about money.

When asked why they worry, most wealthy individuals give the following responses:

• Current lifestyle: will I have enough to maintain my standard of living?
• Medical expenses: what if I, or a loved one, develop a long-term condition?  Or even just need long-term care
• Investment losses: could one bad bet could wipe out all our savings?

These are very common concerns.  But if wealthy families logically know they can afford lifestyle and medical expenses, why do they still feel poor?.

That’s because wealthy families are very good at making money…

…But protecting that wealth requires a very different skill set.

Even families who have inherited their wealth have put hard work into maintaining and growing their assets.  Hard work is what made you and your family wealthy in the first place.  But once you (or your spouse) retire, those moneymaking skills must turn into money preserving skills.

And that’s the reason why even ultra-high-net-worth families worry about money!

Wealth management can provide peace of mind

This is where wealth management companies step in. There is a misconception that wealth managers are a luxury. Nothing could be further from the truth. The best wealth managers help their clients bring peace of mind to their investments by providing tried-and-true risk management skills.

If you’re worried about medical costs, for example, good wealth managers will make sure you have the correct insurance policies in place. If you’re worried about investment losses, they should analyze each investment to make sure your wealth is not overly concentrated in a single factor.

With the right safeguards in place, no single event should be able to sink your financial ship.

As of mine is incredibly important in life. We continuously worry about having enough assets. But imagine The scenario where you can live comfortably, knowing that

1. Your financial risks are mitigated
2. You and your family have enough money to last a lifetime

Doesn’t having that peace of mind make you feel better? In our experience, it’s worth it.

5. You can get more enjoyment from your assets

Once you and your family have the peace of mind of your wealth, it’s time to understand how to best enjoy the wealth. A good wealth manager can help you gain even more enjoyment from each dollar.

Instead of donating $10 million to your favorite charity, what if you could have donated $15 million instead?

By better understanding your assets and knowing how much you can afford, it becomes easier to spend money guilt-free.  For instance, when you look to the by another residence, your focus can be on enjoying the new house.  No need to worry about whether you can afford its upkeep.  You and your wealth manager have already earmarked cashflow for that specific purpose.

Three very different ways for you to spend money on ships.

Tax savings

In addition, a good wealth manager can help you reduce taxes legally. In the end, this means you and your family will have greater flexibility in how to spend your assets. Even if you want to contribute to paying more taxes, you can do that too.  The IRS gives individuals the ability to donate to the Presidential Fund right on their annual tax returns.

Cashflow management

Or if you have significant assets tied up in real estate, a private business, or other illiquid assets, having better lifetime cashflow management can make sure you’re able to spend money both now and in the future without jeopardizing your underlying assets.

Enjoy your wealth!

It’s often easy to forget to spend time enjoying your wealth too. We constantly worry about making wealth and preserving it. A good wealth manager can help make sure you enjoy those assets as well.

Remember that your assets are …well… assets. There’s no need to treat them like liabilities.

How to recognize great wealth management?

Developing a good plan for your assets is important. It guides your investment strategy and creates a focus on preserving wealth for the long run.

But making a great plan can make an enormous difference over time. Especially when large sums are at stake, even a minor change today can mean the difference of millions of dollars in the future.

Yet finding a great wealth manager can be difficult. To start, there are many to choose from. Do you go with a friend’s recommendation? A specialist in your field? And how do you judge wealth managers once you’ve worked with them?

There are more than 12,500 SEC-registered investment advisors in the United States alone! So how do you choose one that’s right for you?

Having great wealth management can be the difference between constantly worrying about your financial future, and being able to relax, knowing that your future is in good hands.

There are many different types of wealth managers. But once you start to understand the patterns that make great ones, it becomes easier to pick them out from the crowd.

So how do you recognize great wealth managers?

1. They are knowledgeable

Good wealth managers are also salespeople, to an extent.  They need to sell their services and know-how to clients. Even the most knowledgeable financial professional will only be successful as a wealth manager if they can communicate well with clients.

In the end, a wealth manager’s job is to manage your assets. 

So how can you tell if your wealth manager is up to the task?

They have the right background

Broker Check: Financial services are one of the most heavily regulated industries in the US. Financial advisors must be registered with FINRA at either the state or national level.  Any prospective client can research a financial advisor with a FINRA broker check. Any suspensions or disclosures will be listed by the SEC.

Background: For younger wealth managers, their education offers a good sense of intellectual firepower.  For older managers, look for work experience with the right firms.

Designations:  Most financial advisors obtain the CFP designation (Certified Financial Planner) as a basic designation.  Some advisors go a step further, obtaining either a masters degree in finance, the CFA designation, or a CPA.  Look for these advanced designations when picking a great broker.

The make you feel knowledgeable

Have you ever met a wealth manager who obfuscates with overly complex jargon? (yes, we wonder too what that means…)

When you talk to a great wealth manager, do you feel smarter after?  You should. It’s the job of a great wealth manager to make you feel comfortable about your investments.  That means they must be able, however advanced or introductory that might be.

If you ever meet a wealth manager who confuses you with overly complicated language, this raises a big red flag.  That’s because truly knowledgeable advisors should be able to simplify things to the level you’re comfortable talking at.

Simplicity can be a great thing when investing.  In fact, simple plans can be some of the most powerful guides.

It’s easy to forget the goal of good wealth management. And great wealth managers can bring that clarity back to you with the knowledge they have.

2. They have a transparent fee structure

Imagine walking into a restaurant where they hide all their prices. Some high-end restaurants seem to relish in keeping their diners guessing. But for the majority of folks, hiding this information is not only annoying. It is aggravating.  In fact, it often spoils the whole meal because you’re constantly guessing how much you’ll owe in the end.

But for some reason, many wealth managers insist on having opaque fee structures.

Doesn’t that “other” part look suspicious?

Even investment advisors with % of AUM fee structures are often not entirely upfront with how much they charge. Different customers might get different percentages.

As a customer, you deserve to know how much you’re paying. And great wealth managers have nothing to hide.

In our experience, the best wealth managers are very upfront about their fee structure. Many wealth managers have tiered structures, where the first $5 million might be charged at a higher percentage than the next $10 million invested.  But this is fine, as long as it is clear.

3. They “click” with your personality

Have you ever met someone who you instantly click with?

You might have just met someone for the first time.  You strike up an interesting conversation, and within minutes, the two of you are sharing thoughts about your world views.  Somehow, they just seem to understand your views.  And so you talk more, getting deeper and deeper into the conversation.  Soon, you’re talking as if you’re old friends.

We’ve all been in this situation before.  A passerby might ask: “wow, how long have you two known each other?”

And coyly, you might answer: “well, we’ve just met 15 minutes ago!”

That’s what “clicking” with someone feels like!

It turns out some people can connect very quickly within four minutes of meeting each other.  These people tend to have very similar personalities. But there are also certain aspects that make some people easier to “click” with than others.

• Ability to talk about the other person
• Showing appreciation and attention
• Asking the right questions and listening to the response

You’ve likely met people like this before. Those who are interested in you as a person.  Someone who just makes you feel interested in talking more.

Finding people you “click” with comes in many shapes and forms. But you’ll recognize it when you see it.

Why does personality matter in wealth management?

There is a certain irony that the best wealth managers must also be able to communicate with clients.  Many people (including younger wealth managers) believe their hard skills are most important.  That their ability to plan cash flow, taxes or estates dictates their success as an advisor.  That’s only partially true.

To effectively manage wealth, a wealth manager must also have their clients’ trust.

“Hang on,” you might ask.  “Is this really necessary?”

Indeed it is.  The client must be willing to open up about their goals and fears for a wealth manager to do their job.

Many wealthy individuals are hesitant to talk about money. This is natural. No one likes to talk about their wealth, let alone talk about what scares them.  But these are important dimensions to explore when you’re planning your financial future.  How else can you go about solving these issues?

For example, one of the most common fears of wealthy individuals is running out of money in retirement.  Even if they logically know they have enough money to retain their lifestyle, it doesn’t stop the emotional brain from saying “Wait a moment… you won’t have any cash flow coming in!”

Why “clicking” is important

You are far more likely to share these thoughts with someone you trust. And if you “click” with your wealth manager, it creates a win-win situation. Your wealth manager is able to do their job, and you are able to get a better result.

That’s why the best wealth managers will find ways to connect with their clients.

And how do you find these people?  Easy!  You’ll identify these people within the first five minutes of talking to them.  Just like the example at the beginning of this section, everyone has “clicked” with someone else before. The best wealth managers will do the same for you.

4. They are inherently curious about you

Curiosity is a personality trait that deserves special mention for wealth managers.

Often, a wealth manager’s role is to educate.  You likely know a great deal about your financial wealth already – most wealthy individuals are well experienced with running companies or have a spouse who is.

Yet, wealth managers will have special knowledge about capital preservation and allocation.  It’s their professional duty to know.  So it’s often very tempting for a wealth manager to talk without listening.

Have you ever been in a room with someone who talks but doesn’t listen?

People talk without listening show an inherent lack of curiosity about the other side. This is also what makes a bad wealth manager. While they may dazzle you with their knowledge and information, it’s all useless unless they know you. That’s because wealth management is a personalized business. There is no one size fits all answer.

So for a wealth manager to know how to manage your wealth, they must know you. Not only is a client, but also as a person. They need to know your goals and your values in life.

Even the Harvard Business Review dedicated to a full issue on the merits of curiosity in business.

Curiosity has other benefits too.

Besides helping a wealth manager understand their clients, curiosity can help them stay up-to-date on recent events. This means they tend to keep more updated on research and financial news.

You will instantly recognize someone who is innately curious about their world. These are people who constantly read and talk with others. Absorbing knowledge wherever they go… always asking questions and listening to responses.

Perhaps you too are a curious soul.  Most avid readers are!

5. They stand out when they talk to you

First impressions matter. Academics have proven this fact over and over in multiple studies.  Everything from clothing style to body posture can contribute to how we see others.

Second impressions matter too.  As do third impressions and so on…

But once you meet a great wealth manager, no matter how many times you meet them again, they constantly stand out to you.  Over and over again.

In fact, great wealth managers stand out like a new car under a Christmas tree.

People often have trouble defining what an “outstanding” individual looks or sounds like. But there certain qualities that these type of people share.

They make you challenge your beliefs

Far from being “yes-men” or “yes-women”, outstanding individuals will often challenge long-held beliefs.  They will certainly agree with you when you are right. But in every conversation, they will add something new. Something that makes you go “huh… I’ve never thought of things THAT way before…”

These people are not afraid of sounding silly.  Nor are they out to make you look foolish. No.  They are simply there to add something new to the conversation

Galileo was one such individual to challenge long-standing beliefs that the earth was the center of universe.

They are quick to understand

Another quality of outstanding individuals is that they are fast in getting on the same as you are. These people dive right into complex situations to understand things from the ground up.  In the computer science world, this is known as “groking.”  This can certainly take some raw intellectual firepower.

They are also quick to understand people’s emotions. In the psychological sense, this is known as “empathy,” or the ability to sense other people’s emotions.

“The highest form of knowledge is empathy.” Bill Bullard

Great wealth managers have a combination of both intellectual and emotional intelligence.

So do you really need wealth management?

Whether or not you need wealth management can depend on a number of factors. Many people are comfortable doing things themselves. This is certainly a reasonable option for those with good experience in managing and preserving wealth.

But how do you know if you *really* need wealth management?

1. Size of assets

The size of your asset-base matters greatly when deciding whether to use wealth management services. Typically those with less than $500,000 in investable assets will find Robo-advisors or DIY methods more appropriate.  Wealth managers typically have minimum fees, which makes them less affordable for people with fewer assets.

But as the size of your assets grow,

The need for wealth management increases exponentially.

You have more to manage

Most high net worth families have multiple real estate properties. As mentioned earlier, they also usually have dozens or more bank and investment accounts.

Wealth management can help you keep track of all these assets in a systematic way. Simply having the right systems in place to monitor your assets can help you identify opportunities and risks in your portfolio.

Risk becomes harder to track by yourself

As your assets grow, you also need to keep track of their risks. What can make your investments go down in value?  How correlated are your assets?

Even professionals can miss this. In the 2009 financial crisis, mortgage-backed securities fared poorly because few people understood how a single event (declining housing prices) could have such a knock-on effect in the value of these highly rated debt instruments.  “Safe” investments turned out to be extremely risky because of asset correlation.

Mortgage loan fraud peaked in 2005. These were extremely difficult risks for people to track.

Are your investment values overly correlated?

You want to make sure that your assets are not overly correlated. That you don’t have all your eggs in one basket. People with fewer assets will find it easier to manage. Perhaps they only have a dozen or so different investments in their portfolio.

But as your asset size grows, say to $5 million or $25 million, you might have hundreds of investments. Risk suddenly becomes important to manage.

2.  The complexity of your situation

Regardless of your asset size, the complexity of your personal and family situation matters too.  These two tend to be correlated, but not always.  Here are several common issues that increase complexity.

Business owners

if you own your own business, your financial complexity increases multiple times. Many business owners also use their business on a personal level. Separating personal and corporate expenditures then becomes difficult.

Even for those business owners who avoid co-mingling business and personal assets, owning a business still adds complexity.  Issues from taxation to succession planning can add complications to families finances. This is not necessarily a bad thing. Owning a business gives you plenty of opportunities to save on taxes and to build wealth. It simply means you have to be careful about managing your wealth if a company is also involved.

Special family issues

Many families also have special issues that they may have to contend with. These may include the following:

Mental disability

Some families may have a mentally disabled child or other family member who needs long-term medical care. You may have to establish a trust in their name, and make sure medical care is available to them.

Divorce/separation

50% of US marriages end in divorce. Issues such as alimony and asset division can worsen contentious arguments in an already emotional situation. In these cases, having a neutral third-party advisor can help analyze the financial outcomes of various settlement propositions.

Aging parents/estate planning

Providing care for family members may also require specialized advanced planning. Having a multi-generational plan to transfer wealth between family members is essential for families with high net worth.

Trusts and Estates

Trusts are another common area for added complexity. Their special tax status means that documentation, management, and ownership are very important to their function.

Perhaps you are a beneficiary of a trust.  Or perhaps you’ve set one up for a family member or charity. Regardless, these investment vehicles can add complexity to your already multifaceted investment portfolio.

Having a plan to transfer wealth between generations can help smooth financial transitions.

3. Your knowledge of investing

Whether or not wealth management is right for you also depends on your knowledge of investing.

Everyone has different backgrounds in finance and wealth management.  And there is nothing wrong with not knowing the details. Few college courses, let alone continuing education, talk much about investing.

While wealthy families are generally excellent at making money, managing wealth requires a very different skill set.  Wealth preservation requires intimate knowledge about investing and risk management. These are skills that you can certainly learn. But at a certain point, it often makes sense to hire a third-party reviewer to either do it for you or teach you how.

If you have low confidence in investing

It is surprisingly common for high net worth individuals to have low confidence in investing. This may sound counterintuitive. How can someone with such wealth be uncomfortable investing it?

There are some good reasons for this paradox. People can have low confidence in investing for a variety of reasons.

• Inheritance: They inherited or were gifted their assets, so haven’t had the experience in managing wealth
• Different strengths: They have strength in running a business, but not necessarily managing money
• Low investment experience: They have a lack of confidence in the stock or real estate markets
• Spouse took care: When a money-managing spouse separates or passes away, the remaining spouse might not know how to manage the wealth

People low confidence in investing are ideal candidates for wealth management or financial advisory.

There is no shame in hiring a wealth manager to help you manage assets. History is littered with stories of fortunes getting made and lost. A good wealth manager can help you make sure you’re not part of that list. In fact, great wealth management can help you actually enjoy the assets far more than worry about them.

If you have high confidence in investing

Those who have confidence in their investment abilities can still benefit from wealth management. Having the services of a private banker can save time. Tax experts can also help preserve wealth. When sums are large, even small differences can amount to large sums over time.

Most importantly, a wealth manager can help you wherever your weaknesses are.  No financial manager is strong at *everything*.  Even if you are a master capital allocator, you might want help with managing real estate or tax work.  Or if you are a great equity analyst, having someone guide you through private placement or succession management can still be useful.

Conclusion

Sometimes, the only thing stopping people from pursuing great wealth management is fear.

Perhaps you’re afraid of confronting financial issues. Were having an outside party critique your current holdings.

But let this be a wake-up call. Great wealth management CAN make a difference. In fact, having better control over your assets can help you stop worrying about money, so you can spend your time enjoying your assets instead.

It’s hardly a surprise that many wealth management companies pride themselves on trust and transparency.

These are important qualities that can help clients feel better about their money.

So what are you waiting for?

It’s time to get your financial house in order. And a great wealth manager can help you every step of the way.

How can we help?

If you’re looking for advice about your own finances, you can contact us for more information. We at Jurnex Financial Advisors are asset managers who specializing in helping families and individuals navigate major life changes.  If you want to get started in regaining confidence over your  wealth, book a meeting with us today and see how we can help.