You are not alone if you’re unsure about the difference between a financial manager and private wealth manager. You’ll find a bevy of labels and terms out there regarding financial professionals who work with individual clients. These terms – which can include Financial Advisor, Financial Manager, Financial Planner, Asset Manager, Private Wealth Manager – don’t always have objective definitions. One thing that’s for certain is you probably are not looking for a financial manager to handle your personal investments. A financial manager manages the finances of their own firm, not an end client. For the most part, the rest cannot truly be distinguished by titles under which they do business. The title isn’t what makes them different, and the names don’t guarantee what services they’ll be providing. As most Texans can attest, not all BBQ joints are created equal, either. Here are some questions to ask when considering a financial professional.
- Do they provide planning services? Things like retirement, college, trusts/wills, taxes, etc.
- Do they use proprietary products or third-party products?
- If proprietary, what does their investment team look like? What’s their track record? Will investment in those products be in your best interest?
- If third-party, what is their incentive? How do they get paid and how do they avoid conflicts of interest?
- Are they independent, or do they work for a larger organization?
- What is their fee structure?
- What is their investment minimum?
As previously mentioned, a financial manager is likely not what you want, but it is helpful to know what a financial manager does. According to the Bureau of Labor Statistics, a financial manager is “…responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization”. This individual works serves his/her own firm’s financial needs, rather than an end client. This is typically someone like a CFO or accountant.
Financial Planners are in a catch-all category that can mean many different things. A pure financial planner typically creates and monitors a financial plan for their client. This may include retirement planning, college savings planning estate planning, etc. They often have access to simulation software that can provide multiple scenarios of investment outcomes based on varying investment decisions. They usually charge a flat fee, or an hourly rate.
If you know you have X amount invested right now and want to know what to do to try to grow it to Y amount at retirement age, these people can offer advice. The category is so broad it can include stockbrokers, insurance salesmen and myriad other types of professionals. A good starting point is to find those with the Certified Financial Planner™ designation, which is awarded to a small percentage of planners who have completed a rigorous series of examinations. Financial planners are not formally regulated, but can be regulated by way of other services they provide (brokerage, investment advice, insurance, etc.).
Moving on, you may have also heard that those labeled as Asset Managers or Wealth Managers typically have high investment minimums. This is not always the case, but firms with those labels may focus their efforts on seeking the business of higher net-worth individuals. Generally speaking, asset managers and wealth managers (as well as investment managers, portfolio managers, etc.) are investment advisers.
An Investment Adviser is a firm or individual who provides advice about investing for a fee. It is a legal term that denotes the firm and the individual representing the firm are registered with the SEC or a state securities regulator. Investment Advisers can also be known as asset managers, portfolio managers or wealth managers, and they may also offer financial planning and/or brokerage services.
The key to understanding all of this is to set aside the name they use. You can interview five different professionals with the exact same title, and find that they provide very different services and are compensated in completely different ways. If you’re paying for someone to invest in third-party products for you and they assess a fee atop customary investment charges, it’s important to also know if they’re providing you added value (tax advice, retirement planning, etc). Focus less on the difference between a “financial manager ” and a private wealth manager and more on the services you’re seeking. Ask how they provide their services and how they get paid. Understand how you pay and the motivation behind the fees you’re charged. You’ll quickly discover if you’re aligned or misaligned in the end goal.
Have you seen those commercials that show some millennial asking questions about investing and the parent not knowing the answer? They are kind of cheesy, but they make an important point. Ask questions to understand the value your investment professional is providing you. It’s your money and you should know what you’re getting for it.
The information provided herein is educational in nature, is not individualized, and is not intended to serve as the primary basis for your retirement, investment, or tax-planning decisions.
AFAM Capital, Inc. (AFAM) cannot guarantee that the information herein is accurate, complete, or timely. Information provided reflects AFAM’s views as of a particular time. Such views are subject to change at any point and AFAM shall not be obligated to provide notice of any change. While AFAM has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third party information presented herein. AFAM makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or reliance on, such information.
Nothing presented herein is, or is intended to constitute, investment advice, nor sales material, and no investment decision should be made based on any information provided herein.
AFAM Capital, Inc. is a Registered Investment Advisor. Al Frank Asset Management and Innealta Capital are divisions of AFAM Capital. AFAM is editor of The Prudent Speculator newsletter and is the investment advisor to individually managed client accounts and certain mutual funds. Investing involves risk, principal loss is possible, and there can be no assurance that investment objectives will be achieved. Past performance is no guarantee of future results. Registration of an investment adviser does not imply any certain level of skill or training. 12117 FM 2244 | Building 3, Suite 170 | Austin, Texas 78738 | p: 512.354.7041 | f: 512.597.2500 | www.afamcapital.com 062-AFAM-2/14/2017