You Don't Have to Be Wealthy to Need a Wealth Manager

While often associated with the ultra-wealthy, wealth managers serve a wide range of clients, offering guidance on investments, financial planning and navigating financial complexities.

If you're questioning whether you need professional help, it's worth exploring.

What does a wealth manager do?

A wealth manager acts as the central coordinator of your financial life, always prioritizing your best interests. Their key services include:

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Comprehensive financial planning. This involves understanding your financial goals and developing a robust plan to help you achieve them. A wealth manager should analyze your assets, liabilities and cash flow, coordinate foundational estate planning and implement proactive tax strategies.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The plan should account for potential external events in the medium and long term, offering resilience and giving you peace of mind, or identifying the steps to achieve it.

Investment management. Investing is a process that includes allocating assets to help you meet goals within your risk tolerance, avoiding undue risk.

The most effective approach involves creating a personalized strategy, diversifying investments, ongoing rebalancing, performance monitoring and setting aside adequate liquidity as determined by the plan, all executed in a tax-efficient manner.

Risk management. It's important to identify threats and set up protection.

This means conducting a needs analysis to prepare for disability or premature death, reviewing your property and casualty insurance in case of disaster and planning for incapacity by recommending you execute necessary legal documents, such as a financial and health care power of attorney.

Coordination of financial affairs. A wealth manager should act as a central point of contact, working with other professionals such as CPAs, estate planning attorneys and insurance agents to ensure all aspects of your financial life work together harmoniously.

For example, we recently worked with an executive in her 40s who joined us in January. On April 9, when the market experienced a significant dip, we were able to take proactive steps:

• Harvested losses and maintained her target allocation by purchasing proxy assets to hold for 30 days to avoid the wash sale rule.
• Reallocated the portfolio: We shifted the bond allocation from her IRA to her taxable account. We also created additional liquidity for her by setting up a line of credit, reducing the risk of maintenance calls.
• Evaluated a partial Roth conversion while the markets were down and coordinated with her CPA to avoid pushing income into the next tax bracket.

After a couple of months, these actions yielded tangible results:

• The $100,000 Roth conversion grew to $120,000, resulting in $20,000 of tax-free gains.
• We realized $104,000 in losses, which allowed us to reallocate funds toward non-U.S. developed markets without a capital gains tax hit.

Reinforcing the pledged account alleviated the client's fear of a maintenance call.

Who needs a wealth manager?

Many people hire a wealth manager when they near retirement, primarily due to concerns about their money lasting throughout their lifetimes. However, these aren't the only individuals who could benefit from professional assistance.

Consider the following questions:

• Do you wonder if you make fully informed decisions while managing your financial life?
• Would you benefit from an objective and unbiased perspective on your financial situation and decisions?
• Are you facing significant financial decisions or transitions (e.g., retirement planning, selling a business, divorce, death of a loved one, inheritance) that feel overwhelming?
• Are you interested in minimizing income or estate taxes? Is your plan for death or incapacity rock solid, given that your family's standard of living is at stake?
• Are you taking advantage of all opportunities and guarding yourself against potential threats?

Many people feel they don't have enough assets to warrant a wealth manager, especially those in their 20s, 30s and 40s who might opt for a do-it-yourself (DIY) approach.

However, understanding the services wealth managers offer underscores their significant value, even for those with a more modest amount of investable assets.

Consider the emerging affluent — young professionals earning significant income. As they get busy with careers, buying homes and raising families, managing their burgeoning wealth can become yet another chore.

Making decisions about stock options, real estate and other financial situations can become overwhelming.

While robo-advisers offer a streamlined approach, they lack the personalized, fiduciary advice a human adviser provides. Interestingly, younger generations increasingly recognize this and seek trusted wealth managers for their growing nest eggs.

For instance, we worked with a client in her early 30s who had held incentive stock options in a private company for years and was considering leaving her job.

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She was unaware of the three-year holding period required for optimal income tax treatment, the potential for alternative minimum tax upon exercising the options or that her option documents stated she would lose tax advantages if she left her employer.

Shortly after meeting with us, she began exercising her possibilities to start the clock on exiting her position, saving her from significant financial missteps.

How do you select a good wealth manager?

Choosing the right wealth manager means finding the right fit regarding incentives, ethics, trust, competence and process.

Understand their compensation structure and inquire about any potential conflicts of interest. You should feel comfortable with their communication and trust them.

Still, the fact that you like their personality shouldn't be the sole deciding factor — many salespeople have delightful personalities but do not follow through by delivering valuable services.

Ensure you aren't lured in by a sales pitch on "planning" that never materializes into a comprehensive financial planning exercise. Dig into this point.

Ask about their ongoing planning process and look for professionals with designations, such as Certified Financial Planner® (CFP®), which signify an ethical commitment and an understanding of fiduciary duty.

The CFP Board has a database where you can look up CFPs in your area.

Ensure that the wealth manager's services align with your specific needs and that they prioritize transparency. Selecting a knowledgeable, qualified wealth manager is an investment in your long-term financial well-being and peace of mind.

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