Do you and your family have a substantial nest egg of wealth? Cash savings, real estate assets, stocks, insurance policies, and luxury items all constitute wealth. While you may have wealth now, it won’t last forever if it’s not managed properly and that’s where wealth management importance comes in. As with most things, it can help to have an external opinion from an experienced, educated wealth manager.
As mentioned, wealth can quickly disappear or deplete if it’s not managed adequately. The third-generation curse almost assures the disintegration of that wealth by the time it hits your grandkids. In fact, one American investor and entrepreneur tells us that 70% of families lose wealth by the time it’s passed down to their kids. That number soars to 90% by the time it reaches their grandkids.
Table of contents
- What is wealth management and do you need it?
- Why is your relationship with your wealth manager important?
- Wealth Management Importance: Knowing when to walk away from a wealth manager
As financial experts with decades of experience, we can’t stress wealth management importance enough for every affluent family. But why is wealth management important? And how does the relationship with your wealth manager come into play?
Keep reading. We’ll walk you through the importance of wealth management, what it entails, and wealth manager relationships.
What is wealth management and do you need it?
Wealth management is a collection of financial advisory and management tactics used to help high-net-worth individuals retain their familial wealth’s value. While the principles can be useful for any family, affluent families use wealth management services the most. Often, the external opinion of a wealth manager can help families make informed, objective decisions when it comes to their finances.
What does high-net-worth mean? In Canada, high-net-worth individuals usually have at least $1 million in investable assets. However, you might find more exclusive wealth managers with experience dealing with clients in the $5 to $10 million asset range and beyond.
Most high-net-worth Canadians are 45 years old, with even higher prevalence in the senior age group (65+). Naturally, it takes time to acquire wealth, unless you inherit it through sudden wealth, which is why it’s more prevalent in the older age groups.
The process involves the financial service provider (wealth manager) consulting with one person, their entire family, or somewhere in between. Conversations help identify the family’s goals, unique situations, and interests to develop a custom strategy to retain wealth.
But wealth management’s importance and scope aren’t limited to tried and true financial strategies (though, of course, those are important). Today’s client wants to feel comfortable and understood. That’s why wealth management firms try to reflect the client’s familial values in their strategies.
Related Reading: Find a Wealth Manager
What is a wealth manager?
A wealth manager is a financial advisory professional with extensive experience managing investments for high-net-worth individuals. They might work at big banks like RBC and Scotiabank, credit unions like Meridian and Alterna, or private wealth firms.
Despite the prevalence of institutions being a setting for wealth managers, it’s not uncommon to see independent or at least independently advertised, wealth managers. The decision to work with an independent wealth manager versus a large wealth management firm is personal in nature.
Your wealth manager strategizes ways to maintain your wealth as much as possible, using retirement planning, tax planning, investment advice, rebalancing, and more. All while offering a personalized service. In addition, some may even go beyond your finances themselves and provide advice for qualitative factors that will affect your money. For instance, if you’re considering doing business with a new individual, a wealth manager may do a background check on the individual to ensure there are no surprises.
Now, what do wealth managers need in terms of certifications? Technically, there is no sole route to becoming a wealth manager. But in general, they should have a combination of education and experience. They might hold one or more certifications such as:
- Certified Financial Analyst (CFA)
- Certified Financial Planner (CFP)
- Chartered Professional Accountant (CPA)
- Trust and Estate Practitioner (TEP)
- Chartered Investment Manager (CIM)
- Certificate in Retirement Strategy (CRS)
- MTI® Estate & Trust Professional (MTI®)
- Certificate in Advanced Investment Advice (CAIA)
It’s also common for wealth managers to have at least an undergraduate education in a finance-related field, like commerce, accounting, or economics. Additionally, most wealth managers have experience under their belt. When looking for a wealth manager, try to find someone who has a similar experience to what you’re looking to achieve.
Important soft skills for a wealth manager include:
- Customer service: Wealth managers are advisory consultants who must always provide stellar service and put their client’s wishes first. Wealth managers who deliver a top tier client experience see much greater shareholder returns than those lacking in customer service and experience.
- Communication skills: Wealth managers deal with people’s lifetime wealth, making client relationships an essential part of the role. Managers must use class and poise to communicate, even during difficult and sensitive conversations.
- Conflict resolution: Families don’t always see eye to eye, which also applies to managing their wealth. A wealth manager might have to mediate disagreements and compromise to please multiple parties.
- Adaptability: High-net-worth clients aren’t all the same. Wealth managers must pivot strategies and tactics to accommodate clients with different goals, from mid-30s CEOs to elderly clients.
As for their fee? They usually charge at least 1% of the value of your assets under management. With some charging more or less depending on how much wealth you have, and how you receive their wealth management services (in person or online). Furthermore, some wealth managers may charge a percentage, whereas some may charge per transaction or flat fees. This is definitely something you should discuss with potential wealth managers before moving forward.
What are the objectives of wealth management?
So, how do wealth managers actually retain your wealth? They use a few tactics, some overarching and some customized, to meet individual family needs.
- Asset allocation: This investment strategy describes how a wealth manager allocates clients’ finances and savings. In other words? Where to invest funds. Asset allocation might vary across different client portfolios, including real estate, stocks, and bonds.
- Diversification: Diversification is a risk management tactic for investments. It entails spreading funds across a wide range of assets and investments instead of relying on one or two types. For example, a diverse portfolio might include a mix of stocks, real estate, or even cryptocurrency.
- Rebalancing: As the market changes, so does the value of your investments. Stocks might plummet, for example. Systematic rebalancing ensures a diverse mix of high-quality assets in a client’s asset mix. Wealth managers might move certain assets around to maintain diversification and value.
- Tax loss harvesting: Tax loss harvesting is a financial maneuver where you sell a poor-performing investment to reduce capital gains tax. In Canada, selling an asset for less than what you purchased it for results in a capital loss.
You might be thinking you can do all of these things on your own, but a wealth manager will bring a certain level of finesse and expertise. Sure, we can all learn to do these things on our own, but it takes a lot of time and effort. Plus, you risk making mistakes that a trained, experienced professional would be far less likely to do.
Related Reading: Asset Management vs. Wealth Management: What Is The Difference?
Why wealth management is important
“Getting to the top is not so easy; staying there is more difficult,” a quote from Husnu Ozyegin, a Turkish billionaire. In other words, it’s difficult to acquire wealth, but even more challenging to maintain and keep wealth in the long term. If you have the fortune of acquiring wealth throughout your lifetime, you should take steps to ensure it lasts. Not only for you but for your family and children who will benefit from it. Hiring a wealth manager or other financial experts can help you maintain wealth over time. It’s quite challenging to do anything alone, as you probably already experienced while building wealth, so be sure to hire people who can guide you. The main thing about wealth management importance is having people around you that you trust to help with financial decision making.
Related Reading: When should I hire a wealth manager?
Why is your relationship with your wealth manager important?
Personal client relationships are a wealth manager’s bread and butter. After all, much of money is about trust so building and maintaining a healthy, open relationship on both sides is important. You should feel confident in your wealth manager’s abilities, comfortable enough to speak frankly about your goals and finances, and secure in trusting them with your entire wealth portfolio.
What do Canadians value in their relationship with wealth managers?
Client relationships for Canadian wealth managers continue to become deeper and more demanding. That rings especially true for younger investors, who are more willing to switch wealth management providers if their needs aren’t met, or if they find a more suitable fit. Of course, this is a double-edged sword for wealth managers. On one hand, it demonstrates increased expectations and loyalty risks for wealth managers; on the other, it opens up new client opportunities.
Here’s what Canadian clients expect from their relationships with wealth managers:
- Transparency: In wealth management relationships, a key factor in trust is fee disclosure. About 40% of Canadians report a concern about hidden fees in wealth management providers. Similarly, 85% of investors deem trustworthiness a very important criterion for a wealth manager. The COVID-19 pandemic enhanced these expectations because it added more stress to investors’ personal and financial lives, diminishing their confidence and necessitating a wealth manager they can truly trust.
- Diverse communication channels: Even in work settings, remote arrangements make collaboration tools like Slack, text and Discord commonplace. People are used to communicating online, and there’s a growing desire to bring that flexible communication to wealth management. One-quarter of Canadians report a desire for digital communication in wealth management. Although, some may prefer traditional communication, such as in-person meetings and written correspondence. It all depends on the individual.
- Sustainability values in investing: ESG investments are commonplace these days, at least for 73% of Canadians. But half of that cohort reports that their wealth manager doesn’t understand their sustainability goals.
- Credentials and expertise: Clients don’t care about prestigious university education as much as they do about professional designations (like the Canadian Securities Institute certifications we mentioned above).
- Comfort: One retirement blogger describes her relief at the ability to chat with her wealth manager about stressful topics and feel calm after the conversation. This important ability comes from a strong educational background and impeccable people skills. Another survey showed that 73% of investors prefer advice from humans rather than robots, a balancing act with the desire for digital engagement.
Related Reading: Wealth Management and Independent Advice
Wealth Management Importance: Knowing when to walk away from a wealth manager
Do you feel like your wealth manager dismisses your concerns? Have you lost faith in your asset mix during tough times? Or perhaps simpler: do you have trouble reaching your wealth manager?
Wealth management is a financial field heavily focused on client relationships. As an investor and high-net-worth individual, you need a lot of assurance from your wealth manager. After all, they’re often responsible for your entire portfolio. And here’s the thing: if you feel like something’s off — you don’t have to accept it. Not every working relationship is meant to last forever and as your finances and lifestyle evolve, so should the people advising you.
Look at it this way. The investment funds and wealth management industry employs over 81,000 Canadians. And they’re spread across hundreds of firms, professionals, and banks. Meaning? You have options! Canada has tons of wealth management firms, banks, bank branches, and independent wealth professionals.
Are you happy with your wealth manager? We hope so. But if not? You can walk away and explore wealth management services elsewhere. It’s your money and you choose how it’s managed!
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