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When asked about the definition of wealth, people are likely to give a response that involves stocks and bonds. As financial advisors, we know that wealth goes far beyond dollars and cents. In order to provide excellent service to our clients, we must acknowledge this and embrace “true wealth management” in our practice.
The most successful wealth managers focus on all the types of wealth, not just what their Bloomberg terminals display. This often includes an assessment of a wide range of non-financial aspects of wealth, such as family relationships, jealousy, fairness, personalities, openness and many other factors. These issues will have a great impact on your client and his/her family’s wealth and ultimate happiness than investments alone.
Wealth management professionals should do a great job with investments, while also assisting with the complex financial and non-financial issues that arise when life, family, money and business intersect over time. Remember that wealth management is not a one-time event, but it is an ongoing process that evolves over a lifetime, and sometimes, generations.
What is “true wealth management?”
Effective wealth management is composed of three critical, related pieces:
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Investment management: managing investments to grow wealth.
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Non-investment financial management: managing non-investment finances to enhance, protect and transfer assets.
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Relationship management: (1) managing client, client family and wealth manager relationships and (2) managing the professional network of tax, legal & accounting advisors that are required to execute a comprehensive wealth management plan.
In the world of wealth management, both non-investment financial management and relationship management are talked about a lot in theory but are rarely executed in practice. Industry research shows that only 7% of financial advisors provide these critically important services. However, 100% of advisors should provide these services.
The core elements of non-investment financial management
Non-investment financial management must start with a comprehensive financial plan. This is standard thinking for most wealth managers. However, most advisors do not routinely include all the core elements of non-investment financial management in their financial plans. Wealth managers should analyze a client’s overall financial situation in detail, identify planning solutions and evaluate alternatives. They should then develop a comprehensive goal-based financial plan and make recommendations designed to meet the client’s desired objectives. While not every wealth manager will make recommendations using the following nomenclature, all of them need to address these financial areas to be considered a true wealth manager:
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Wealth enhancement maximizes cash flow while minimizing taxes.
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Retirement planning and execution are the foundations of a financially independent retirement.
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Estate planning and wealth transfer facilitates the tax-efficient distribution of your assets to future generations in a manner that respects your final wishes.
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Planning for common and uncommon life events until someone invents a crystal ball, it’s best to be prepared for the good and bad that life can throw at you.
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Insurance and wealth protection aims to safeguard your wealth against all forms of loss through a combination of insurance strategies, income protection and liability coverage.
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Credit and lending are foundational tools for achieving business and investment goals.
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Charitable giving maximizes the impact of your charitable intent and can often support efforts in each of the other areas of your wealth management plan.
For a plan to function effectively, none of these areas should stand in isolation from the rest. A professional who practices true wealth management should combine investment and relationship management with all of the areas above into an effective wealth management financial plan that evolves over time.
In all of the above, wealth managers whose advice is elevated to the level of a fiduciary, (for example, SEC-registered investment advisors) are better positioned to execute your wealth management strategy. That’s because fiduciaries have a duty to execute investment strategies that are in your best interest (and not anyone else’s, including their own). Why would you not give your clients the best possible service?
Roger H. Ingwersen, CFP®, CIMA®, CRPC®, is the managing partner and the founder of The Harvest Group Wealth Management, LLC. As a Certified Financial Planner™ Practitioner, CFP®, a Certified Investment Management Analyst, CIMA®, and a Chartered Retirement Planning Counselor, CRPC®, Roger’s goal is to provide sound, unbiased advice that seeks to deliver consistent performance, with minimal risks for clients. Roger can be reached at [email protected]
Read more articles by Roger H. Ingwersen
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
