If you crack open a thesaurus (or more likely, go online) and look up synonyms for the word “finances” you’ll find words like “money”, “investments”, and “accounts” – all words that sound like the word “wealth”. Similarly, when you look up “advisor”, there are words like “counselor” and “director” – not that different from the word “manager”. The terms “financial advisor” and “wealth manager” are often used interchangeably. But should they be?
It’s tempting to conflate the two terms, but that would be a mistake. Geometry might provide us with the best picture as to why that’s so. Any four-sided figure with four right angles can be called a rectangle. If all four sides are of the same length, then it can also be called a square. Just like every square is a rectangle, but not every rectangle is a square, every wealth manager is a financial advisor but not every financial advisor is a wealth manager. Let’s explore the difference between the two, because each serves a unique purpose.
Financial advisors have been around for centuries, even if they haven’t carried that specific title. A “financial advisor” can be thought of as a broad term to refer to someone who helps clients with a wide range of financial services. What those financial services are can vary greatly from one financial advisor to another. The oldest professional financial advisory association in existence today is the National Association of Insurance and Financial Advisors (NAIFA), which was founded in 1890.
Let’s look at an example of how different two people who are both financial advisors can be. Both a certified public accountant (CPA) and a chartered life underwriter (CLU) could be considered financial advisors. But a CPA works with taxes and accounting, while a CLU is an expert in the subjects of life insurance and estate planning. In this case, two people who could lay claim to the mantle of a “financial advisor” would fulfill very different needs for clients. Obviously, the individual situation will dictate what kind of financial advisor someone should gravitate towards.
Specific needs, such as insurance planning or taxes, are best dealt with by financial advisors who specialize in those particular areas. Sometimes, the needs are much more general, and someone might be looking for help with budgeting or reducing debt. In a situation like that, a money coach or a credit counselor, both of which are financial advisors, might be the appropriate solution.
Financial advisors play an important role, but oftentimes it’s a very specific role. What do you do if you’re a wealthy individual who needs a comprehensive financial plan? What if you don’t want to have to deal with five different financial advisors to manage all your needs? That’s where wealth managers come into the picture.
Just like a square is distinguished from other rectangles because of its four equal sides, a wealth manager has a distinguishing characteristic that sets them apart from other financial advisors. While a financial advisor can work with someone from any income level or net worth, a wealth manager primarily serves high net worth individuals. That characteristic (who they work with) has far-reaching ramifications.
In 2019, Morningstar released research showing the five most important things that clients look for in a financial advisor. #1 on that list was “helps me reach my financial goals”. #2 was “has the relevant skills and knowledge”. Based upon those answers, it’s clear that a high-net-worth individual looking for a comprehensive financial plan should look for someone who has “been there, done that”.
Because they usually work exclusively with high-net-worth individuals, wealth managers have a specialized understanding of the unique challenges, decisions, and risks of their clientele. When working with a wealth manager, it can be comforting to know that you’re dealing with someone who has experience with situations like the ones that you’re facing. Every person faces unique situations when it comes to money, and high net worth individuals are no different. In fact, the more wealth you have, the more complex questions you may have.
Each wealth manager will have their own definition of how they define “high net worth” individuals who they will work with. For some if your net worth is $500,000, you would be considered eligible for their services. Others might require a minimum investment of $2 million. If you’re considering a wealth manager, all you need to do is simply ask them if you qualify for their services.
Which is Right for You?
If there’s only one aspect of your financial picture that you need help with, a financial advisor who specializes in your particular need is probably the route to explore. However, if you’re a high-net-worth individual who wants someone to help you deal with your whole financial picture, wealth managers have the experience to guide you through the process.
About Chase Investment Counsel
Chase Investment Counsel is a family and employee-owned boutique wealth management firm that offers personalized investment services. Our clients include career professionals, those nearing or in retirement, and families experiencing financial transitions such as generational wealth transfer, widowhood, divorce or sale of a business. Chase’s active, disciplined investment management team is focused on selecting individual stocks and bonds targeted to each investor’s specific financial goals and risk tolerance. Established in 1957 in Charlottesville, VA, Chase Investment Counsel manages approximately $300 million in assets.