Understanding Wealth Management – What You Need to Know

Learning how to grow our financial acumen while also enjoying our lifestyle, can provide several positive attributes. In fact, many American households are adopting financial planning best practices and in turn affording the lifestyle they want to enjoy now while also preparing for the life they desire in their future. Benefiting both them and those they love the most. 

This is why both, wealth management and holistic financial planning are helpful and worth learning more about. 

To learn more about wealth management and how to find a professional financial advisor that works in your best interest, continue reading. 

What is Wealth Management?

It’s easy to confuse the terms “wealth management” and “financial planning.” 

To help differentiate the two let’s talk money for a sec. Did you know there are only five ways in which money is used? Yes, only five ways and those are: generosity, savings, spending, taxes, and debt. Let that soak in for a second while thinking about how your income is used in each of those categories. 

Now, let’s come back to what Financial Planning is compared to Wealth Management. Financial Planning is the plan that best maps out your wishes for leveraging each of these five categories. It is the path that brings life to your journey by creating short, mid and long-term plans. Some examples include refinancing a home in low-interest rate environments, planning for your next vacation, meeting goals for education, bucket list items, meeting a charitable goal, tackling the conversations we don’t want to discuss, and yes, planning for your next phase in life. Whether that is your first child, an empty nest, retired or other. The keyword is leverage.

Sounds nice? A plan that helps you enjoy your current cost of living while also visualizing the path towards where you want to go. That’s why many American households are adopting financial planning as a best practice. 

Alright, that’s financial planning. So, what is wealth management? Think of the engine that is needed to help with each of these five uses of money. Afterall, money does not grow on trees. 

Wealth Management is the supervision, management and oversight of the assets needed to help carry out the plan. Those assets can include a wide variety of investment accounts, real estate, business accounts and other holdings. 

As a side, please note that an income is not an asset and should instead be considered more like a promissory note. That said, our incomes should be included in the plans that help grow assets.

A wealth management strategy should work cohesively with your holistic financial plan. Like an engine works with a transmission or how the right and left side of the brain work together. Each is better together. 

Your wealth management strategies should also include investment planning, risk management, tax planning, diversification tactics and estate planning. Here is a more detailed look into some important wealth management strategies and what they mean for your long-term financial picture:

Investment Management

An investment is something that over time should increase in value and serve a purpose. It is also an asset and therefore should be managed accordingly. 

Many investments are contributed to at a known frequency such as an employer-sponsored retirement account pulls from a paycheck. However, some investments are more of a buy-and-hold strategy such as a piece of land. 

Investments come in a variety of forms and types. Hence the importance of managing them towards a goal or purpose. This management could include managing various securities, bonds, commercial business property, residential rental property, businesses, and business accounts, to name a few. 

Each serving a purpose while also introducing a unique tax implication and outcome. 

It is important to remember that investments function best within a known and managed strategy, i.e., plan. 

Risk Management

Risks are all around us and risks come in various forms. In short, risk is exposure to loss, danger, harm, or other outcome that diminishes value. For example, fire and water damage are potential risks to our homes as much as they are to a rental property. Market risk is a reoccurring thought for many and often has a way of lingering. Passivity introduces risk in the missing of opportunity and loss of compounding over time.   

Risk management should include identifying all known risks associated with life and investing and where possible, lessening the uncertainty that surrounds both. A common term associated with risk management is risk tolerance. Meaning, how tolerant are you regarding any potential loss an investment may experience. 

It is much easier to talk about the upside but it’s not the upside that creates worry. Talking about both the ups and downs is a healthy exercise and one that is needed for all plans.

Know there is no such thing as a wrong risk tolerance. Your risk tolerance is uniquely yours and you should not be persuaded to alter it. That said, it is also very important that your investments are being managed within your risk tolerance while also being realistic with investment expectations. 

Much like your risk tolerance is uniquely yours, all risk tolerance levels have an expectation that is uniquely theirs. It is very important to be realistic with expectations associated with the risk you are willing to take while not chasing expectations associated with another risk tolerance.

Tax Planning

Raise your hand if you enjoy filing your taxes. Raise your hand if you enjoy tax planning. Know the difference? 

Filing our taxes has evolved into an annual event of gathering forms, leveraging deductions, credits, and other legal exemptions to reduce tax liability for the previous year.

Interesting, compiling data to reduce taxes owed on income from the previous year. What about leveraging known best practices for future years? What about potentially decreasing your tax liability in retirement rather than only chasing “kicking the tax can down the road” opportunities from the prior year? There is a substantial difference between filing taxes in arrears versus tax planning for the future.

In most scenarios, the past is an irreversible event yet filing our taxes gives us one last chance at making some tweaks to decrease our tax liability for the previous year. Conversely, think of tax planning as a mix of best practices that promote the most ideal scenario for your future or as we like to say, “it’s better to prepare than to repair.” Thanks John Maxwell. 

Filing your taxes and tax planning are important to most everyone. However, most households are not looking both directions when crossing the “tax street”. It behooves you to know the difference and leverage both for your plans.

Estate Planning

When you think of the word estate what do you envision? 

Do you think of possessions you have? Or maybe about things you don’t have. 

Estate planning is the management of one’s cumulative net worth whether they are alive or deceased. Think of your estate as the sum of all assets, belongings, possessions, properties, and liabilities and your wishes for each. 

Wishes come in various forms. To name a few there is guardianship while living, how to distribute assets after death, tax implications, protection of loved ones from themselves and others as well as generosity in perpetuity. An estate plan should also address tax planning. 

Let’s ask the question again. When you think of the word estate what do you envision? 

No matter the magnitude, extent or size, there is an outcome that will be decided for your estate. Our suggestion is for you to own the narrative. 

Consider the advantages of working with a team committed to you. 

What fears would be addressed and potentially mitigated if surrounded by professionals working on your behalf? 

What would you be able to enjoy more of if you were able to trust that a team of professionals is looking after your best interest and managing responsibilities that align with those interests?

What tasks would no longer be put off if you had a team walking alongside you?

Think of a time when you were most productive or maybe a season in life when things seemed to fall into place. Were others involved? Most likely yes. 

Teams that value continuity will more often prevail over individuals. Who is on your team proposing new ideas, looking for blind spots, asking difficult questions, gazing into the future, and mapping out plans while you are doing all the heavy lifting associated with life, marriage, parenting, and working? Each of these is a full-time job. 

Professionals in the wealth management and planning arenas, at their core, should be in the people business. Not product or profit first. People first. Relationships first. Fiduciaries.

Things to Know and Next Steps?

When searching for a team of professionals that melds well with you, here are some helpful thoughts. While no one is perfect, there is a match that will work best for you. 

Does this person and team align with your values? Do they speak of the importance and differences in wealth management and holistic planning while demonstrating how they work with their clients? Is fee transparency important to them? Are they able to articulate their competency clearly? Are they selling a product and is their service “free”? 

Do they work as an RIA, registered investment adviser (RIA), i.e., fiduciary? How are they compensated? What is their work history? Do they work on or with a team? What is their work experience? 

These are great questions to ask however you shouldn’t have to ask. Professionals are comfortable in speaking to what differentiates them in an authentic and confident manner. These are basics and should be openly shared. If you have to ask these questions, that might tell you what you need to know. 

Be encouraged and invest in your future by visiting with a wealth management and financial planning team. Contact us if you’d like a complimentary second opinion review.