Should You Hire a Wealth Manager? Here’s What to Consider

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How to Value a Wealth Management Firm

Wealth management firms help people and households plan their finances and grow their wealth. Wealth management services encompass financial planning, investing, estate planning, tax planning and insurance and risk management. Wealth management firms evaluate your current financial picture and lifestyle and provide a comprehensive financial plan to help you achieve your goals while managing financial and life risks. They also help manage your investment portfolio. 

Before you start working with a wealth management firm to help plan your finances, evaluate them based on a set of factors such as their fee structure and whether they operate as a fiduciary for their clients. Alternatively, if you’re a busy professional who prefers to manage your own finances and make your decisions by yourself, you might consider an AI based financial planning tool such as Planwell, which can help plan multiple financial goals such as Financial Independence Retire Early (FIRE), kids’ college, home buying and many more.  

Factors to Consider before Hiring a Wealth Management Firm

There are several important factors to consider before hiring a wealth management company to help manage your finances. 

Fees structure: AUM vs Fixed price 

You should be aware of how financial advisors make money from offering services to you. You need to ensure that there is full transparency. 

Financial advisors typically have 2 types of fee structures: 

(1) Fixed price: Fixed priced financial planners and advisors charge a fixed amount per year to handle your finances. This cost can vary from $2000 to $8000. The advantage of a fixed fee advisor is that you know upfront exactly how much you will pay.  

(2) Assets under management (AUM) fees: In this structure the advisor charges an annual fee of 0.5% to 2% (or even more) of all the assets that they help you manage. In theory, the advantage of this fee structure is that it aligns the interests of advisors with their clients.  As your assets grow, so do their fees. However in practice this does not always work to the client’s benefit. AUM fees can chip away at your returns due to high fees and runs counter to the Boglehead philosophy of keeping costs low.

If you want to keep costs low and are comfortable managing your own finances, you can consider an AI driven tool such as Planwell, which allows you to make your own financial decisions.

Fiduciary Status & Conflicts of Interest

Sometimes advisors are paid by asset management companies to push their investment products which often tend to have high fees and a high cost structure. This can eat away at the returns generated from investments and runs counter to Boglehead best practices. In such cases, there is a clear conflict of interest between the advisor's incentives and the client’s financial well-being. 

On the other hand, a fiduciary financial advisor is required legally to act in their client’s best interests and avoid conflicts of interest. A fiduciary financial advisor is compensated by fees from their client and must recommend financial products that are in their clients’ interest and not in the interest of asset management firms or themselves. Ask your prospective financial advisor whether they are  a fiduciary. Also look at the fee structure of any fund recommendations to check for high fees that will eat away at your returns. 

Account Minimums and Investible Assets

Some financial advisors may prefer to work with clients who have a high level of investable assets. If you do not have the level of investable assets expected by an advisor or do not want all your assets to be managed by the advisor, you may wish to look at alternatives. 

Do You Have the Time?

Even though advisors may do a lot of your financial planning for you, it can be a significant time commitment. Typically, clients have to fill out exhaustive questionnaires about their financial situation and spend several hours in discussions with their advisors. While this is all useful, it may not work for busy professionals, especially those who wish to follow a Do-it-Yourself (DIY) approach on their own time schedule.  

How to Determine If Professional Guidance Is for You?

Professional guidance can be useful in the following situations.

Complex Financial Situations

If your financial situation is very complex, you might want an advisor to work with you and go over your finances. Especially if you find yourself in a tough situation, such as a divorce or a change in job situation, you might want the reassurance that a human advisor can provide.

Human Connection

People may value human connections and want to talk to a human and validate their financial decisions. Another interesting aspect is that financial advisors can help in getting members of a family on the same page, especially if there are stark differences in how they think about money.

Prevent Emotional Decision-Making

People prone to making emotional financial decisions may be better off with a human advisor who can provide reassurance and talk them out of rash decisions such as panic-selling during market uncertainties. 

The Importance of Having a Comprehensive Financial Strategy

A comprehensive financial strategy will take into account your current financial situation, income and savings. Moreover people can have many types of financial goals, both short and long term. By planning finances comprehensively, you can make tradeoffs between these different goals, plan different scenarios and do what-if analysis.

Plan Goals and Make Tradeoffs

People can have long term goals such as retirement or college planning for kids. You may also have short term goals such as that home remodeling project you may wish to do in 6 months or wish to take that trip to Europe in the summer. A comprehensive financial plan would help you figure out which goals are more important than others and how to make the right tradeoffs. Planwell’s tools help you crunch the numbers and look at your finances holistically. 

• If you could reduce your expenses by 20%, can you retire early?
• If you buy a larger home, how does that impact lifestyle choices such as travel?

Crunch the numbers and figure out the sweet spot for all your goals.

Scenario Planning & What-If analysis

A comprehensive financial plan helps you anticipate and consider multiple scenarios and run what-if analysis. For example, with Planwell, you will be able to model a variety of what-if scenarios such as high inflation, changes to income or expense levels, or changes to mortgage rates. 

Retirement Planning

Retirement planning is crucial, whether you plan to retire at the normal age in your 60s, or whether you are targeting early retirement. Planwell helps you figure out whether you can retire early and whether Coast FIRE, FatFIRE, Lean FIRE or Barista FIRE are right for you. 

Investment Planning

You should plan your asset allocation based on your risk tolerance and how close you are to retirement. The Bogleheads investing framework can orient you towards low cost funds with a well diversified portfolio and disciplined investing via approaches such as dollar-cost averaging (DCA).

Estate Planning

And last but not the least, do not forget estate planning and determine how your property and assets should be set up and distributed upon your death. It is crucial to set up your will and trust to make sure your kids and heirs are provided for in the event that anything should happen to you. You should assign a power of attorney and healthcare proxy to make decisions on your behalf, create trusts, update beneficiaries for each retirement account and life insurance plan. And last but not the least, designate guardians for your kids and dependents instead of leaving it to the probate court to decide this.

Key Life Events That Demand Financial Planning

While financial planning is always important, there are several key life moments that make it essential and urgent.

Buying a Home

Many people do not always plan their finances when buying a home. After all, the lender has qualified you for a certain price, so they must know, right?

Not really. Lenders typically qualify you based on the highest possible amount while managing lending risk for themselves. They tend to have standard rules of thumb such as debt-to-income ratios(DTI). However, you need to consider many other factors, such as your expense levels, lifestyle and goals. A standard rule-of-thumb that lenders use may not work the same for everyone.

Having Kids

If you plan to have kids, you may also want to think about putting aside money for their college funds or other future expenses associated with child rearing.

Debt Management

If you have huge student loans or want to know whether you need to pay off loans or invest in the markets, you need to crunch the numbers and see which option allows you to save more money.

Retirement Stage

As you get closer to retirement, you may want to plan your finances to cover a withdrawal strategy that helps your money last through your lifetime. A good withdrawal strategy should also help you manage your tax payments and Required Minimum Distributions (RMD). It should consider factors such as your desired retirement lifestyle and medical needs in retirement.

Divorce or Loss of a Job

Life events such as divorce can change your finances overnight and will require extensive planning to ensure that you are set up financially for a post-divorce world.

Disability or Illness

A disability or illness is a trigger factor for you to plan your finances and model different scenarios.

Conclusion: Final Thoughts on Securing your Retirement

A wealth manager can be useful for people with complex financial situations and those who value a human connection while making financial decisions. Key factors to keep in mind include understanding how advisors are compensated, via AUM or fixed fees and whether they are a fiduciary. Also ask prospective advisors if they have minimum investable asset requirements and evaluate whether you meet these minimums.  And last but not the least, if you are a Do-it-Yourself (DIY) person, you may wish to look at a fully automated AI driven financial planning tool such as Planwell, which avoids the high fees and potential conflicts of interest. 

Planwell can help you plan for retirement, kids college and other financial goals with our fully automated financial planning tool. 

• What is Coast FIRE? Find out how to Coast Your Way to Financial Independence.
• What is barista FIRE? Retire early and work part-time.
• Lean FIRE: The frugal way to achieve financial independence and retire early. 
• How to retire early and achieve financial independence: Tips to retire early and achieve FIRE (Financial Independence, Retire Early)
• How to build a personal financial plan: Before you make a home purchase, make sure to build your personalized financial plan with our 10 step guide. 
• How to Use AI Budget Calculators and Tools to Plan Your Finances: Take advantage of our free FIRE calculator  to plan your finances more effectively.
• 5 Common Money Mistakes to Avoid: Learn about the pitfalls that could derail your early retirement plans.