But with something this important — and complex — you don’t want to take a half-hearted approach, using the gaps in your busy schedule to check on your investments and try to keep up with market trends.
Instead, you may realize it’s time to hire someone to do this for you. That’s where a wealth management firm enters the scene.
But how do you know which options are reputable and right for you, and which to avoid?
This expert’s guide to choosing a wealth management firm will tell you everything you need to know to confidently put your trust in the professionals.
Questions to Consider Before Choosing a Wealth Management Firm
Controlling your finances is about more than income and budgeting.
It provides a comprehensive look at your current and future needs, as well as your short and long-term goals and the reality of your circumstances, all under the umbrella term of wealth management.
Not all companies and firms offer this type of comprehensive financial service. Because it’s holistic, it requires personalization, which is time and resource-consuming.
And within those firms that do provide wealth management services, each business may subscribe to different approaches.
This distinction makes it crucial to know what exactly you’re looking for. Before you start the interviewing process, take a moment to ask yourself these questions to help you choose the right wealth management firm.
What Are Your Financial Goals?
Your knee-jerk response to this question might be obvious, like “I want to save for retirement,” or “I want financial stability.” But digging into those statements will give you more insights into what type of wealth management firm expertise is best for you.
Consider these factors to determine the correct pathway to reaching your goals:
Risk Tolerance
How averse or willing are you to take risks with your money?
This answer determines your risk tolerance, or your enthusiasm for risking losses as you pursue reaching your financial goals. There is no right or wrong risk tolerance level; yours will depend on factors like your:
- Age
- Goals
- Income
- Life obligations
Your financial advisor should understand your risk tolerance level and create a financial plan that aligns with your comfort zone, meeting your needs accordingly.
Short-Term And Long-Term Return
What short or long-term return goals are you looking for?
Short-term investments are defined as those that can easily be converted to cash (usually within five years). Long-term returns are assets that will be held for an extended period before being sold, or, in some cases, will never be sold.
Current Financial Situation
Your current income and financial obligations significantly impact your investment decisions.
Do you need to pay off debt before making major investments? How much of your income can you feasibly use to reach your financial goals?
Future Expenses
Will you or your loved ones need help paying for college or a wedding? Will you be buying a house or a new car in the next few years?
These major expenses (as well as your income, comfort level with investments, and short and long-term expectations) should be part of your financial plan.
Keep Reading: The Beginner’s Guide to Investing for Doctors
What Capabilities Will Your Wealth Management Advisor Need to Have?
Knowing your financial goals, you can look for a wealth management advisor with the experience to help you achieve them. They should also have an investment philosophy that aligns with yours.
First, the wealth advisor should understand your financial needs. For example, as a physician, your strategies will likely differ from those of the average worker. A wealth management firm that focuses on in-depth tax-advantaged strategies, estate planning, and asset protection is essential.
The right firm will also possess specific investment management expertise to help you develop a comprehensive, long-term financial plan.
What Type of Service-Level Involvement Do You Want?
Service looks different throughout the financial advisory world. What you expect should guide you in finding the right wealth management firm.
- Do you want someone who will be with you for the long term, guiding you through your decisions and potential outcomes in a hands-on manner?
- Would you prefer advice only, with the advisor taking a hands-off approach to making and changing investments?
- Or is your preference somewhere in the middle?
Your answer matters and will lead you to the type of wealth management firm we’ll discuss in the next section.
What Amount Are You Comfortable Paying?
Before moving ahead, consider what you’ll expect to pay when you hire a wealth management firm. You never want to be blindsided when you hear the costs.
Let’s look at an overview of typical fees, broken down by types of advisors:
- Registered investment advisors are paid a percentage of assets under management (AUM), around 1% annually.
- Robo-advisors also charge a percentage of AUM, ranging from 0.25% to 0.50%.
- Investment brokers are often compensated by commissions from the products they recommend
- Comprehensive wealth management firms are more hands-on and charge 1.5% or higher for more in-depth services.
Some advisors charge by the hour (usually for specific advice or projects) or on retainer (monthly or quarterly fees for long-term services). You might also see those who receive their payment based on investment performance.
Regardless of the type of fee structure, transparency is essential. Before signing a working contract, you should be informed of any conflicts of interest or other factors that may influence fees.
Types of Wealth Management Firms
Wealth management firms may be holistic or focus on more specific goals, such as estate planning or investment management. As mentioned, they can be as hands-on or hands-off as you need, provided you find the right type of firm.
Some advisors offer investment advice only, helping you build your portfolio. Others will guide you as you create a budget and stick to a spending plan to meet your short and long-term goals.
When you find the right wealth management advisor, they will align with your values, include a range of capabilities, and hold the right experience.
No matter which firm you choose — unless it’s an advice-on-demand only robo-advisor — you can expect to have discussions regarding your:
- Net worth
- Portfolio management
- Financial planning
- Tax strategy needs
- Estate and retirement planning
This expertise looks different depending on where you go. Most people seek out wealth management through banks, brokerages, registered investment advisors (RIAs), and family offices.
Banks
Banks offer structured approaches to wealth management through a limited range of products, guiding clients while giving them complete control over every step.
For investors who want to be part of every decision, this approach works, but it can have a downside if the decision-making process is too slow and you miss market shifts that could have worked in your favor. Banks are ideal for those seeking personalized service through relationships and who are willing to pay higher fees for the results.
Brokerages
Brokerages also give the investor control: you can adjust, buy, and sell independently and immediately. The drawback of this type of firm is that it’s easy to make spur-of-the-moment choices without full knowledge or based on emotions. Support from a broker can range from self-service to robo-advisor or specialist access.
Registered Investment Advisors
An RIA is defined under the Investment Advisers Act of 1940 as a person or firm that provides advice, makes recommendations, issues reports, or furnishes analyses on securities for compensation.
These acts can be done directly or through publications. Those who engage in these activities must register as investment advisers with the Securities and Exchange Commission (SEC) or a state securities administration.
RIAs must disclose their investment styles and strategies, fee structure, potential conflicts of interest, and any past disciplinary actions so you can find all of this information while researching the firm.
When you hire an RIA, you can expect to receive an investment strategy tailored to your individual financial goals. Financial planning is performed in a fiduciary manner, with your advisor making suggestions based on your best interests.
Therefore, it’s common for RIA firms to work with busy, high-net-worth clients, managing their assets and making decisions on behalf of the investor. RIAs are legally obligated to act in a fiduciary capacity, which fosters a higher level of trust between the client and the firm.
Family Offices
For ultra-high-net-worth individuals, a family office may be the preferred wealth management firm. This designation refers to a private wealth management company that works with clients who have more than $30 million for investment purposes.
Family offices offer private wealth management and advisory services, such as financial planning, concierge, and other advice, to help those at these niche income levels.
Questions to Ask the Firm
You’ve done your due diligence on yourself, and you’re aware of what you expect to get from this wealth management journey.
Now it’s time to come up with the right questions to find out if a particular advisory firm has what it takes to get you to your intended financial future. These questions should help you narrow down your options to the ideal firm:
What Licenses Do They Have?
Investment advisors are required by law to be licensed and/or registered, federally and/or state-wide. This and other important information must be publicly available, making it easy for you to check out an advisor or firm before meeting with them.
Look for red flags like disciplinary problems or issues with regulators and clients. You can view this information and verify registration with either the SEC or a state securities agency on the Investment Advisor Public Disclosure (IAPD) website.
Do They Have Professional Certifications?
Most people who work in these firms are Certified Financial Planners (CFPs), but not all. You may see other acronyms, such as:
- Chartered Financial Analyst (CFA)
- Wealth Management Certified Professional® (WMCP®)
- American Institute of Wealth Management Analyst (AIA)
Certifications mean the advisor is educated in that specialty. Look for firms that are experienced in wealth management, as well as other specialities like estate and tax planning for your profession.
Do They Sell Products or Work on A Fee Basis?
Advisors who sell products for a commission are common; that doesn’t mean it’s a negative thing.
However, they may be incentivized to suggest the products that provide them with a higher commission, even if it isn’t in the client’s best interest. Regardless of how they are compensated, the fee structure should be clear and transparent, including disclosures of potential conflicts of interest.
Common Mistakes to Avoid When Hiring a Wealth Management Firm
No matter how prepared you are with your needs and questions, it’s easy to fall into the pit of common mistakes when you’re faced with entrusting your personal finances to someone.
Selecting a wealth management firm is vital to your financial future. Take a minute to skim these frequent errors to ensure you are confident with your final choice:
- Choosing a friend or family member over an experienced advisor – Yes, it’s great that your best friend or sister-in-law is a new RIA, but until they have more experience to meet your goals, stick with someone with a proven track record in wealth management.
- Only thinking local – Financial advice no longer has borders. Stretch the limits to find a firm you feel comfortable with, even if you meet with them online.
- Keeping your long-term advisor – There’s a lot to be said for loyalty, but if your long-term advisor has stopped growing with you, your investment portfolio might, too.
As with any important decision, seeking a second or third opinion is always wise. This is particularly important if you meet with an advisor who challenges your perspective.
Remember, they’re trained in the latest financial trends. If more than one advisor suggests similar advice, even if it’s something you’re not comfortable with, you might want to consider what they have to say.
Conclusion
Wealth management includes more than choosing whether or not to include mutual funds in your portfolio. It’s a comprehensive combination of financial decisions encompassing everything from asset allocation to estate planning and beyond. The firm you choose must be a good fit for your needs.
At OJM Group, we provide guidance and education based on your overall financial situation and goals. With our years of experience and knowledge, you can make strategic financial decisions regarding wealth planning.
Schedule your consultation to get started!
Disclosure:
OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of practice in the State of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact practice in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov.
For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.
This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice, or as a recommendation of any particular security or strategy. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.
Index Disclosure: An index is an unmanaged portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Index returns shown are price returns, which exclude dividends and other earnings.