High-net-worth individuals with at least $2 million to $5 million in combined assets are increasingly turning to private wealth management advisors with the goal of growing and preserving generational wealth for their families. Often, this means building a personal relationship between the client and the advisor to help plan out and execute a strategy for meeting specific, long-term financial goals.

However, private wealth management isn’t the best option in every situation. Further, even the best financial advisors cannot guarantee success in every situation. For these reasons, private wealth management is often an exercise in balancing the costs of working with an advisor with the benefits provided by taking a holistic approach to managing your finances.

What is Private Wealth Management?

Private wealth management is the practice of working with a client to build and execute a plan that best meets their individual financial needs and goals. Wealth management advisors will coordinate with the client’s attorneys, accountants, insurance agents, and other professionals to create informed strategies that support and nurture the client’s long-term financial health.

Put another way, private wealth management is the practice of nurturing, growing, and protecting the financial interests of high-net-worth individuals (HNWI).

Wealth management advisors will charge a fee for services provided for their clients, providing each client with the freedom and peace of mind they need to focus their attention elsewhere. In most cases this will occur through the creation and execution of a comprehensive financial plan centered on core offerings such as portfolio and investment management, financial planning, estate planning, asset protection, risk management, tax planning, tax preparation, and other services that can help cultivate generational wealth.

What Services Should I Expect from My Private Wealth Management Advisor?

Private wealth management advisors will generally focus on improving a client’s financial health in three core areas:

  • Smart investments that match the client’s risk tolerance.
  • Protecting and preserving generational wealth through estate planning and other financial-focused legal strategies.
  • Creating a strong tax strategy that accounts for the deductions and credits available to high-net-worth individuals.

We’ll outline each below.

Smart Investments that Match the Client’s Risk Tolerance

The first pillar of private wealth management centers on creating new sources of income that can help grow your current wealth. When you first meet with your wealth management advisor, they will take a moment to determine your financial goals and gauge your risk tolerance. They will then develop a plan for investing your assets in a way that helps you meet your financial goals as fast as possible while accounting for your individual preferences for risk.

After accounting for all the specifics, your advisor will construct a portfolio of investments ranging from safe havens such as cash and municipal bonds to riskier options such as stocks, options, and advanced investment vehicles such as real estate or private equity.

Since the goal is to diversify your portfolio to reduce risk — while simultaneously growing your wealth — your advisor will work with you every step of the way to ensure your specific needs, preferences, and goals align with the executed financial strategy.

Protect and Preserve Capital and Assets to Create Generational Wealth through Estate Planning

The second pillar of wealth management centers on protecting and preserving generational wealth. Often, this means building a detailed estate plan that accounts for your family’s long-term goals. Your financial advisor will educate you on the pros and cons of the different types of trusts and will generally help organize your estate to minimize the impact that estate and inheritance taxes will have on your family’s wealth.

Your estate plan will work in conjunction with your tax plan to develop a strong and long-lasting estate that will help provide for your descendants for generations to come.

Tax Strategy and Preparation to Lower Your Annual Tax Burden

The final distinct service that private wealth management offices provide is the creation and execution of a detailed tax-saving strategies. These strategies can help you claim a variety of deductions and credits to limit your tax burden at the end of the year.

A strong tax strategy will take advantage of current tax laws for both short and long term capital gains, dividends, and interest tax rates while also taking into consideration future legal frameworks to help minimize what you’ll have to pay on an annual basis in taxes. High-net-worth individuals — such as those who qualify for private wealth management — particularly benefit from these frameworks due to the ease at which they can qualify for uncommon but powerful tax deductions and credits that may help them save hundreds of thousands of dollars each year.

Importantly, these tax-saving strategies can extend to the long-term as well, as many wealth management advisors will coordinate their estate planning strategies with their short-term tax strategies to build a plan that minimizes how much you’ll have to pay in taxes over the lifetime of your estate.

What are the Benefits of Working with a Private Wealth Management Advisor?

Working with a private wealth management advisor provides a variety of benefits over both managing the accounts yourself or using a different solution such as a public, non-fiduciary financial advisor.

Private Wealth Management Tends to Have a Higher ROI than Traditional Accounts

Private wealth management accounts generally tend to have a higher return on investment (ROI) (although past performance is not indicative of future results) when compared to checking accounts or even some other types of investment accounts. Often, this is because wealth management advisors make meeting client goals a priority, and thus consider a wide variety of investment vehicles before choosing strategies that put your best interests first.

In this fashion, your advisor will carry out key research to determine both the sustainability and profitability of various investment vehicles over the long-term. This curated approach ensures that your portfolio’s growth is always in line with your personal goals and accounts for both changes in the market and adjustments in your own financial preferences and needs.

Fiduciary Responsibility Leads to Increase Clarity

A fiduciary is an individual who — due to ethical and legal requirements — must put a client’s best interests first when making financial decisions. For example, when determining whether to buy or sell an investment a fiduciary must first determine whether this action meets the needs and furthers the goals of the client.

This can be compared to financial advisors who are not fiduciaries, who often face fewer restrictions when managing client funds. For example, a non-fiduciary advisor may choose to invest funds into a product that provides them with a commission, thus creating a conflict of interest.

Keeping this distinction in mind, it’s important to note that private wealth management advisors are bound by a fiduciary duty to manage client assets in a way that furthers their goals and protects their interests. For this reason, these advisors will do their best to understand your individual risk tolerance, risk capacity, and risk perception as they relate to your financial goals.

This means that your advisor will always put your best interests at the heart of every financial decision. Further, this system has the added benefit of providing you with increased clarity and peace-of-mind in the contexts of your financial health, as your interests will be aligned with the interests of your wealth management advisor.

Access to Advanced Investment Vehicles

The final major benefit of working with a private wealth management advisor is access to advanced investment vehicles and other exclusive, alternative opportunities for accelerated financial growth. While investors in the public sphere are often limited to listings on stock exchanges and other mass-market investment vehicles, working with a private wealth management advisor can open your portfolio up to more lucrative possibilities that are only available to accredited investors and other high-net-worth individuals.

Who Qualifies for Private Wealth Management?

Private wealth management is generally only beneficial to clients with investable assets of at least $2 million to $5 million. This is due to the alignment of interests between the clients and the firms that provide wealth management services.

In most cases, individuals who fall into these categories feel that their time is better spent on tasks such as growing their businesses or spending time with family, and generally don’t have the time or capacity to manage their complex financial situations. Similarly, private wealth management offices are usually offer their services in exchange for a percentage of the total value of the account — usually around 1% to 2% annually. This means that smaller accounts (of less than $1-2 million in total assets) generally aren’t profitable due to the extensive time and resource commitments given to all private wealth management accounts.

For these reasons, most private wealth management offices will set a minimum of around $2 million to $5 million in assets for new accounts, with some larger offices requiring a minimum of up to $10 or $50 million.

How Much Does Private Wealth Management Cost?

Private wealth management is an exercise in cost-benefit analysis.

On one hand, you should expect to pay around 1% to 2% of the total value of the assets under management annually depending on the type of account and the level of attention required. These fees are taken from the account regardless of performance and are the cost of the services performed for managing the account.

On the other, private wealth management firms often provide higher returns when compared to other types of financial accounts, in addition to having the costs of financial planning, tax preparation, and several other services baked into the percent-based fee. This means that financial situations that require a greater level of attention and management will often come out ahead due to the holistic, goals-based approach taken by wealth management advisors.

Considering that the typical return on investment for such accounts can range from 7% to 9% per year (although past performance is not indicative of future results) — as opposed to the 0.5% to 2% return seen in checking accounts — the cost of private wealth management is often a question of whether such a setup is the best approach for your financial situation once the costs are taken into account.

Determining Whether Private Wealth Management is Right for You

Private wealth management may be the right fit if you meet all the following criteria:

  • You are a high-net-worth individual with a minimum of $2 million to $5 million in manageable assets.
  • You recognize that keeping up with a complex financial portfolio can be difficult and may not be an effective use of your time.
  • You understand that wealth management advisors have a fiduciary duty to put your financial health first, and you are willing to let them help you meet your financial goals.
  • You understand the costs and benefits of such a financial setup, specifically in the contexts of the percent-based fee structure and the breadth of services offered in areas such as generating income, protecting capital, and minimizing your tax burden.

In most cases, private wealth management provides numerous benefits over personal or public management options. From generally higher rates of return to the personal touch of having a financial advisor devoted to your needs and goals, private wealth management is a lucrative option that can help high-net-worth individuals develop new sources of passive income, protect their wealth, and plan for the road ahead.

If you believe you qualify for private wealth management, you should schedule a call with a financial advisor to go over your options. A great place to start is our tax-savings calculator, which can help you determine how much you could save on your taxes every year. Please feel free to also call our office at (772) 257-7888 to schedule a consultation with one of our experienced financial professionals.