It is not uncommon for people to wonder whether they may need a financial planner. Most people only plan for retirement. However, the contemporary world and its financial lifestyle are very dynamic, making financial planning important for all stages of life. No more do only FDs, pensions, and social security form the core of a financial plan. The need for overall comprehensive financial planning is acute for all, which is why it's becoming more and more important for one to consult a financial advisor to know and implement effective financial strategies to manage their finances.
Financial planning gets more complex when the quantum of wealth increases, such as in the case of high-net-worth-individuals. Ordinary investors today can access the best of financial planners to chalk and walk their financial journey. But, HNWIs have varying needs and a financial planner may not always be the right fit. They need tailor-made solutions and seek expertise on varying subjects. And hence, a private wealth manager could be a better choice for them.
Financial planning and private wealth management are fundamentally two different concepts that are often used interchangeably by HNWIs, but not so much by the regular workforce. Let's define who a private wealth manager and a financial planner are, and when you should enlist the services of one.
Who is a private wealth manager?
Private wealth managers typically manage large volumes of wealth, offering specialized and customized services to high-net-worth-individuals. Wealth management includes various services ranging from risk management, tax planning, estate planning, retirement planning, to even capital gains assessment. Some HNWIs trust their wealth manager to even act on their behalf, and plan and manage their investments, estates and assets completely, reserving only signatory rights to oneself. In a sense, the client's needs determine the kind of services a private wealth manager will provide.
Private wealth managers help prevent wealth from eroding with time by identifying opportunities that can generate more wealth. This is what sets private wealth managers apart from other financial experts in a similar domain. Private wealth managers actively seek out high risk-high reward opportunities that can help grow the client's money and accumulate more wealth, even as a part of their portfolio is invested in safer debt market instruments to compound over time. The strategies used by private wealth managers are different from the approach used by financial planners. The financial planning strategies of private wealth managers have more depth and complexity and are often tailored to suit the client's specific needs. They may or may not include legal and accounting services too.
That said, most private wealth managers, though follow a fiduciary standard of service delivery, they may or may not be bound by law to put the interest of their clients above themselves. In fact, HNWIs must seek out such wealth managers who act as fiduciaries to ensure accountability and loyalty that may play a part in capital protection, and make the high-cost engagement a worthwhile investment.
Private wealth managers generally charge fees as a percentage of the assets they manage, while they only work with people who have an investable asset to the tune of $1 million. This makes them expensive to hire. However, a good financial advisor is an investment, not an expense.
When to hire a private wealth manager
HNWIs are not likely to have the time and resources required on their hands to introspect, research, execute a financial plan, and to follow through, monitor and rebalance it thereafter. While one may claim some amount of control over finances, it is difficult to stay abreast of the changing industry and the policies that affect investments, keep track of market rhythm and ensure your portfolio remains in the black. HNWIs especially, with their enormous corpus and higher level of risk profile, imperatively require the services of a trustworthy and qualified private wealth manager.
HNWIs can have all their financial planning needs met by a wealth manager. They need financial experts who not only can help them with aspects of financial planning but also cater to various unique needs like estate management, creating Trusts, charity, distribution of family assets and business, legacy planning, and mitigation and navigation of legal issues, if any.
Who is a financial planner?
A financial planner helps individuals with personal finance and steers them towards meeting their financial goals. One of the primary aims of a financial planner is to help their clients manage their investments and assets.
Financial planners can help individuals achieve both long-term and short-term financial goals. A financial planner will begin their work by assessing their clients' financial situation, identifying purposes for the future, and then drafting a plan to meet those goals. Financial planners also hold expertise in identifying a specific set of asset classes that suit the future goals of their clients and help diversify their portfolios to create wealth holistically over time.
These financial experts primarily may handle the investment portfolio of their clients to help achieve financial stability. Some of the top areas that financial planners focus on are investment planning, cash-flow management, debt management, and retirement planning.
When to hire a financial planner
With plethora of information available on all media, one may wonder if they would ever need a financial manager. It is important to note that no two people are the same, and in line, implementable financial advice can never be generic.
It is easy to say that you must save for retirement during your earning years. But how much you should save would depend on various factors that only a personalized financial advisor may be able to guide you on after in-depth analysis.
Financial planning should be looked at as an investment, and frankly, everyone needs financial advice, be it for budgeting, to help figure out investments, to save towards retirement or achieve other financial objectives.
While there are many titles for financial advisors, should you be looking for a financial professional who can help you with saving for the future, budgeting and tax planning, in addition to meeting immediate financial goals - a financial planner may be your best bet. Financial planners can also be hired by individuals who want to take control of their spending habits, reduce debt, and invest for life goals like early retirement.
For investors with a complex financial situation, hiring a financial planner could be a good move. These professionals can help you get out of a financial mess and even help you chalk out a clear plan to move forward. Financial planners also look over and plan for events like divorce, marriage, alimony, etc.
Fundamental differences between a financial planner and a private wealth manager
Many people believe private wealth management is just an upscale term for financial planning. While no one can argue that the services offered by both financial planners and private wealth managers overlap, there still are several distinctions between the two.
Read on to know how these two differ from each other based on the following factors:
- Nature of work
- Financial services offered
- Involvement in asset management
Private wealth managers largely cater to HNWIs and ultra-high-net-worth-individuals (UHNWIs), including the wealthy, ultra-affluent, and elite class who want expert handling of their finances.
On the other hand, financial planners primarily focus on anyone who wants professional help to manage their finances and investments. Financial planners generally work with individuals from all walks of life and help them manage their finances irrespective of the volume of their assets.
Since private wealth managers cater to clients with massive volumes of investable assets, their nature of work differs from that of financial planners. Financial planners may offer traditional services to help even the most common taxpayer take charge of their finances. On the other hand, private wealth managers provide many benefits to help people with high-value assets and estates. At times, many strategies used by private wealth managers may be exclusive, one-of-a-kind, and customized for a specific client.
Financial planners have a more direct approach to their client's financial lifestyle. They help their clients chalk out a plan to better manage their finances. On the other hand, private wealth managers largely help retain and grow assets by working closely with their clients on a day-to-day basis.
Courtesy of the difference in their nature of work, the services offered by private wealth managers and financial planners also differ.
For example, private wealth managers may deal with more complex problems like charity planning, estate planning for multiple future generations, helping with business succession, portfolio tax management, and family governance. Private wealth managers also offer advanced risk management, wealth preservation, and future drafting strategies. These are particular niches that a financial planner may not be equipped or skilled to take care of.
On the other hand, financial planners offer tax management, investment planning, retirement planning, budgeting, and essential cash-flow management services. That being said, many services offered by both these professionals can overlap, driving them to perform the duties of one another.
Since wealth management requires an active management approach, a private wealth manager may remain highly involved in the day-to-day asset management for their clients. Private wealth managers take charge of various assets, assess your goals, gauge your risk appetite, and sometimes even venture out for new investment opportunities.
Financial planners, on the other hand, may follow a passive process. This means that a financial planner will not make decisions for you on your behalf. They will only make suggestions and recommendations based on your risk profile, long-term and short-term goals, and current financial situation. The client will take the ultimate call.
The fees charged by private wealth managers and financial planners vary broadly.
For example, private wealth managers consider Assets Under Management (AUM) a critical benchmark for their fees. Generally, private wealth managers and firms will charge a certain percentage of the AUM annually. As per later negotiations, the entire amount is paid to the private wealth manager quarterly or monthly.
On the other hand, financial planners are more flexible in how they charge their clients. They may also use the AUM model like private wealth managers. Alternatively, they may also have a fee structure in place and charge their clients by the hour. Some financial planners also work on a retainer with their regular clients based on a comprehensive plan.
It might be safe to say that all private wealth managers are financial planners by default. However, all financial planners are not private wealth planners. Luckily HNWI and ordinary investors have a plethora of experts to choose from, depending on their lifestyle and financial requirements. That being said, understanding one's need, risk appetite, and available corpus makes choosing the right finance expert easier.
If you’re unsure of the most suitable financial services for your needs, consult with a financial advisor to explore your options. Use the free advisor match tool and get matched with 1-3 qualified financial fiduciaries who may be able to help you with your specific queries and create customized plans for you.