While terms like “financial planner” and “wealth manager” may sound synonymous, these two types of financial professionals have different areas of focus. Financial planners help their clients with investment advice, budgeting and dealing with debt— and while wealth managers do many of the same things, they tailor their practice to the unique financial needs of more affluent clients, often referred to as high net-worth individuals (HNWIs). HNWIs are those who have accumulated a large amount of wealth. Often, the threshold is considered to be more than $1 million in investible assets.
Investment management. Investors with a lot of capital often have access to a broader range of investments such as private equity and hedge funds, which can take greater expertise and experience to manage effectively. Also, things like real estate can make up a larger proportion of their portfolios. These investments can have different, and often more complex, oversight needs than typical mutual funds and stocks.
Tax planning. In part because HNWIs’ assets are often held in a broader range of investments, their taxes can be more involved. For some HNWIs, tax liability for capital gains is higher than their income tax. Wealth managers and tax professionals can offer strategies to mitigate HNWIs’ tax burden.
Gifts and estate planning. Managing generational wealth is a frequent concern of HNWIs — and trusts are often used to pass assets on to their loved ones or charitable causes while helping to mitigate estate taxes. However, there are various types of trusts, each with different tax and other rules, so these instruments need to be set up carefully.
A certain amount of assets is allowed to be gifted without incurring taxes — for 2023, up to $17,000 per person can be gifted — and that amount can be gifted from each spouse. But for certain types of gifts and donations, such as to a child’s college fund, there can be an even greater tax exemption of up to $75,000. According to the IRS, “Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000.” Wealth managers can also work with attorneys to assist in setting up private foundations or endowments to support charitable causes.
Risk mitigation. Frequently, another important role of a wealth manager is asset protection, as HNWIs are often at increased risk for identity theft and fraud. Wealth managers can assist with privacy protection and fraud detection, as well as helping ensure their clients’ assets are properly insured. This may include securing umbrella coverage and policies or riders for tangible assets such as antiques and jewelry.
Wealth Managers Have Specific Expertise for HNWIs
While anybody can benefit from the guidance of a financial professional, oversight needs can become more complex as investments diversify and assets increase. And that’s one reason those who have amassed significant assets can often benefit from the specialized advice and services of a wealth manager.
Contact a qualified financial professional to see if you might benefit from working with a wealth manager.
Sources
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity
