Wealth manager vs financial advisor: decoding key differences | Playbook (2024)

When you first hear the words wealth manager and financial advisor, you may immediately wonder, “Aren’t they the same person?” The quick answer is no. There are various differences that separate a wealth manager vs. a financial advisor, but the primary differentiating factor is their clientele. Let’s explore the contrast between these two roles to help you figure out if you need one of them on your financial team.

What is a wealth manager?

A wealth manager is a financial professional whose specialty is providing strategic guidance to people with substantial assets. This expert takes a comprehensive approach to managing their client’s wealth, going beyond just investment strategies. They also typically incorporate tax-minimization strategies, estate management, and retirement planning.

Their primary goal is to optimize and protect the overall financial well-being of their high-net-worth clients. They create customized, diversified tax minimization and wealth-building strategies to meet their client’s financial goals while helping them navigate the complexities of wealth accumulation, preservation, and distribution.

Wealth managers don’t have a universal minimum net worth requirement, so wealth management firms typically set their own guidelines that could range from $250,000 to $1 million or more.

Wealth managers typically charge fees based on a percentage of the assets they manage for their clients, known as the "assets under management" (AUM) model. The resulting fees are proportionate to the total value of the client's assets under the management of their wealth manager.

What is a financial advisor?

A financial advisor is a professional who offers guidance on various aspects of personal finance to individuals or businesses. Their job is to assess their client’s risk tolerance and financial goals to help them make informed decisions. Most focus on investment strategies, but some specialize in budgeting, retirement planning, and insurance.

Financial advisors may use a variety of compensation structures, including hourly fees, AUM, or fixed fees for specific financial planning services. Some financial advisors may also earn commissions on financial products they sell to clients.

Spotting the differences

Just like in the classic children’s magazine Highlights, spotting the differences between two similar things can be challenging. So, we’ve laid out the main contrasting points between a wealth manager and a financial advisor to make it easier for you.

Available services

Wealth Managers offer a comprehensive suite of services, going beyond basic financial advice to handle investment management, tax planning, estate management, and more. Financial advisors may also focus on many of these areas, but most specialize in investing, retirement planning, and portfolio management.

Qualifications

Although the title of wealth manager is not an official credential, most are armed with advanced educational backgrounds and certifications such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Chartered Wealth Manager (CWM).

Financial advisors also possess a variety of credentials, like Certified Financial Planner (CFP) or Chartered Life Underwriter (CLU). Some may receive securities licenses such as Series 7 and Series 66, depending on their service specialty. Like wealth managers, there is no government-set requirement for financial advisors to secure any of these certifications.

Fee structures

Compensation for wealth managers usually involves a percentage of assets under management (AUM), illustrating their commitment to matching their success with their client's portfolio performance. On the other hand, financial advisors use a variety of compensation models, including AUM fees, hourly fees, fixed fees, or commissions. The type of fee structure they offer depends on the services provided.

Relationship duration

With a focus on building enduring relationships, wealth managers often work with clients over the long term, adapting strategies to evolving financial situations and goals. Client relationships for financial advisors can vary in duration, with some providing more transactional or short-term services, depending on the client's needs and preferences.

Do you need a wealth manager or financial advisor?

When looking at your financial future, if you find yourself longing for some clarity in a sea of financial jargon, you're not alone. Deciding whether you need a wealth manager or a financial advisor will depend on the details of your personal financial situation, your overall goals, and the level of expertise you prefer.

If you're a high-net-worth individual with substantial assets and complex financial needs, a wealth manager might be the ideal fit for you. They can assist with tax planning, estate management, and crafting personalized strategies tailored to your objectives for growing and protecting your wealth.

On the other hand, if you're looking for more general financial advice, have a smaller net worth (i.e., less than $250,000), and have a focused financial need in one area of expertise, a financial advisor will work best for you. Because they cater to a broader scope of wealth levels, they can help find tailored solutions to support your financial goals.

The Playbook take: Optimize your wealth (no matter how much it is)

Figuring out whether a wealth manager or financial advisor is right for your financial goals can be a challenge. The decision between the two should be informed by the specifics of your financial needs:

• Complex Wealth Management: If you have high net worth and are juggling diverse assets and intricate goals, need to preserve and pass down wealth, and want a holistic approach to your financial well-being, a wealth manager is likely the best fit for you.‍
• Focused Financial Advice: If you’re more focused on investment-related decisions or your retirement portfolio, a financial advisor might be worth hiring.