Why High Net-Worth Individuals Need a Wealth Manager

As a high-net-worth individual you understand that wealth can come and go, and to secure generational wealth is a herculean task requiring you to pay careful attention to where you invest your money.

But who needs the hassle of checking the markets every day and placing trades on accounts? You probably don’t even understand how markets work, you’re too busy focusing on your companies or other businesses that generate revenue.

That’s where a wealth manager comes to the table. They’ll help you keep the money you earn for generations, ensuring seamless transition of your estate between generations, and continual growth of your assets and investments.

A wealth manager does a lot for their clients, but many HNWIs have no odea what they do or how they do it, they just want to see their net worth rising every time they see their audited financial statements for the quarter.

Protecting Your Wealth in a Risk Environment

If you have millions sitting in a checking account and income streams adding to it every month, you’re missing out. With savings accounts paying record low APYs, and a rampaging inflationary environment in the economy, you’re losing money due to the devaluing dollar.

So, the only option is investing it in markets that deliver consistent returns. For the last 15 years, we’ve seen the expansion of the biggest bull market in stocks in history, with the Nasdaq, S&P500, and the Dow Jones indices continuing to defy logic, smashing through all-time high after all-time high.

A HNWI who decides to actively manage their money instead of using a wealth manager might fall prey to the hype that leaving your money in an ETF that tracks the S&P500 and other leading indices, will outdo the returns you can make in any other actively managed investment.

Here’s the problem with that strategy.

The reality is that markets can’t always go up. While we’re in the middle of a tech euphoria leading to the biggest bubble in stock market history, the reality is the music will stop sooner or later. If you’re not actively managing your investment and watching the market every day, you could get caught by surprise as the market plummets and indices crash when the bubble pops.

A wealth manager handles the responsibility of managing your investments. Plus, they have years, if not decades of experience in portfolio management and investing, where you probably have none, or limited knowledge on the subjects.

So, they’ll see the risk environment in the indices coming, and they’ll get you out of your positions in these volatile indices before a sell-off turns into a market crash, wiping out a significant percentage of your wealth. A wealth manager knows how to manage the risk environment, and move your money between markets and assets to mitigate risk and increase profitability.

What Do You Know About Investment Strategy?

We touched on this lightly a second ago, but we’ll get a bit deeper into it right now. Wealth managers study economic degrees and transition into a career in finance at an investment banking level, usually working for large firms. As they gain more experience and build their track record, they look at starting family offices that handle the affairs of a few clients. Or they might start hedge funds catering to HNWIs, offering outlandish returns to the investors who choose them to manage their money.

The point is that wealth managers spend decades building a career. They watch the markets every day, they have experience executing trades and reading setups on charts. They understand the role of geopolitics in markets, and how to rotate your positions into risk-on and risk-off assets as market conditions change.

Thinking that you can do this yourself and achieve the same results as a seasoned professional is a bad move, and could end up costing you huge losses as you watch the markets transfer wealth to those managers who know what they’re doing.

Growth on Autopilot

Why go to the hassle of learning investment strategy, and the anxiety of trading the markets? As a HNWI, you probably have a lot going on, and adding to your already tight schedule isn’t going to do your business interests any favors. As a HWNI, you understand the principle of leveraging other people’s skills and talents to help you achieve your goals.

It’s the same approach to managing your money when you hire a wealth manager. You’re getting a seasoned professional working on growing your wealth. You leverage their experience in investment analysis, trading, financial management, estate and tax planning, and much more. Essentially, you leave the asset growth up to the managers and focus on running your businesses and building your cash flow.

Wealth managers aren’t faceless people, they provide client management services that build your relationship with the firm over time. As your relationship develops, and the manager delivers consistent returns, you create a synergy between you that makes it easy to let go of the anxiety of delegating your wealth management to a third party. They’re only a phone call or email away, and they’re at your service.

In Closing: What to Look for When Assessing Wealth Management Advisors

Track record, it’s all about track record and past performance. The asset manager should have audited statements of their annual returns to prove their profitability. Licensing and certification are a must, and researching the firm’s reputation is an important part of your due diligence process. Asset managers typically charge a “2/20” structure, meaning 2% management fee on assets held, and 20% commission on all profits they make for your portfolio.

Some managers may charge more, with the legendary and late Jim Simons charging clients a 3/30 structure to join his Medallion Fund. That’s an exceptional case, because Jim’s fund was an outperformer, and he closed its doors to new clients many years ago. Nevertheless, ensure your wealth manager is willing to commit to a long-term relationship, and understanding their track record and the firm’s history should be your top priorities when assessing a prospective wealth manager.