There is no universally accepted definition of wealth management, which can lead to misconceptions about what the practice involves. The term may refer to investment management, private banking, stock picking, even estate planning. To many, it can mean all of these. To some it can mean none of these.
“Those who call themselves wealth managers may each provide a different service,” says Jim Budros, chairman and founder of Budros, Ruhlin & Roe, Inc.
This has led many to form false impressions of the practice, which keeps them from using services that can be helpful to their financial well-being.
Smart Business spoke with Budros about the general misconceptions associated with wealth management and how the practice can be better defined.
What are some misconceptions about access to wealth management services?
It’s a commonly held belief that access to wealth management services is just for the wealthy. But wealth management decisions can be about a person’s first 401(k) deferral, buying a life insurance policy or budgeting.
Some people believe it’s expensive. There are, however, many wealth managers whose relationships with clients are on a project, per hour or percentage of assets under management basis. Each of those payment scenarios can make access to services available to those with greatly different levels of wealth.
What’s inaccurate about who wealth managers are and the services they provide?
Wealth managers often specialize in different aspects of wealth management. Some may focus on investments, some deal mainly with financial planning and others represent banks or brokerage firms. It’s important that those seeking these services determine what they require and find a person who can help. Generally, the scope of service should be clear from the outset. That clarity should be found in the contract that is signed at the start of the relationship.
Wealth managers should not make promises they can’t keep, so look for a proven track record of success. A good wealth manager will tell his or her clients that the process is the solution.
One thing to look out for is conflict of interest. Wealth managers who classify themselves as fiduciaries must work with their clients’ interests above their own, and recommend products and strategies in their clients’ best interests. Those who are not fiduciaries may recommend any product as long as it’s suitable. It’s a subtle distinction, but an important one.
What is a more accurate description of what wealth managers can do?
The description is based on one’s point of view. Generally, the phrase wealth management suggests a scope of services that’s relatively broad based and includes financial planning and investment management.
Financial planning is an activity that seeks to articulate one’s goals in a procedural way, and then determine a course of action to achieve them. Investment management happens once money has been accumulated — it’s what you do with the money to achieve the goal financial planning has defined.
When is a good time to begin working with a wealth manager?
One of the misconceptions is that wealth management starts when a person retires. If the whole process starts at retirement then it’s often too late for it to be most effective.
Wealth management can start very early in life and include decisions such as building a current income stream with jobs and education, providing insurance coverage, managing and reducing debt, and building an emergency fund.
For those who wonder about their financial future, the sooner they get connected, even in a temporary way, with someone who can give them financial advice without conflict the better.
When you retire, you don’t turn all your money into cash, spend it and die. Most people have a lot of living left once they stop working. There are wealth managers who provide services for those planning later in life, so there’s someone for everyone regardless of life stage. Bear in mind, however, that working within a wealth management process is like compound return: The outcomes improve with time.
Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.
