The Informed Investor

Wealth managers are financial advisors or planners who build and maintain their clients’ accumulated wealth. If you have significant assets, ensuring you are doing the right things to protect and grow your wealth is worthwhile. But can working with a wealth manager help you do more with your money?

The answer is: …it depends.

What is critical is finding the right wealth manager. If you do find a high-quality wealth management firm with an excellent reputation and relevant industry expertise they can be instrumental in helping you develop a strategy to preserve and build your wealth based on your needs and goals.

WHAT CAN YOU DO AS AN INDIVIDUAL INVESTOR?

Before looking at how working with a wealth manager might help, it is informative to first look at what individual investors can normally accomplish on their own.

The abilities of individual investors, on average, are not impressive – research suggests most of them underperform the market. And not just occasionally but consistently.

According to investor research firm DALBAR, individual investors saw an average return of 3.69% annually over a 30-year period, even though the S&P 500 averaged three times that number, at 11.1%.[i]

So individuals left almost 7% in potential annual market returns on the table.  Why does it happen? Well, managing your own money is not as easy as it seems. As humans, we all tend to fall victim to emotions, as well as several unconscious biases.

WHAT DO WEALTH MANAGERS DO?

Wealth managers, on the other hand, are trained to manage the assets of others. They do not have the same emotional attachment that is often a disadvantage for individual investors. Quality wealth managers, then, can help you maintain a disciplined approach to investing that may improve performance and capture more of that “return gap.”

WEALTH MANAGERS HAVE ACCESS TO BETTER INFORMATION

Wealth managers also have an advantage when it comes to information.

Even though there are plenty of free resources available on the internet, professionals rely on paid data services that show them more comprehensive information.  Some of these services are simply too expensive for individual investors to afford, and few are willing to pay for even the lower-priced services that are available.

The major players—including wealth managers and institutional investors—are acting on highly researched industry information, and without those resources for timely, accurate, and relevant data, individual investors are at a disadvantage.

WEALTH MANAGERS COUNTER COMMON INVESTOR BIASES

Individual investors frequently succumb to natural biases that influence their investment decisions. Biases such as loss aversion, confirmation bias, and social conformity can lead to chasing performance, buying when stocks are at their peak, or panic selling when economic indicators turn negative or the market falls.1

Wealth managers can serve as a counter to biases like these, providing an objective view against blind spots that may lead you astray. Put simply, a good wealth manager could be a buffer between you and expensive mistakes.

More importantly, quality wealth managers can work with you at the beginning to help you develop an Investment Policy Statement that will provide discipline to your investment process. By removing the emotional component, you can stay on track to realize more of the possible returns by not reacting to the daily news, fear, and other emotions.

WEALTH MANAGERS CREATE ADDITIONAL RETURN

Overall, wealth managers often have a noticeable positive impact on their clients’ returns. While historical data does not guarantee future returns, and clients will not see uniform results, two studies suggest that hiring a good, experienced wealth manager can help increase an investment portfolio’s performance.

One Vanguard study looked at 15 years of investment history and concluded that wealth managers can have a quantifiable effect on returns. The study found that financial advisors may increase returns by three percent when best practices are followed.[ii]

Another study from Russell Investments reached a similar conclusion. It found that a good financial advisor can potentially increase returns by 3.75%.ii

WEALTH MANAGERS DEVELOP INVESTMENT STRATEGIES

When it comes to developing an investment strategy, quality wealth managers can help by creating and maintaining discipline and structure and positioning your investments to weather market volatility. So instead of being subject to quick decisions and emotional mistakes, your portfolio will have the benefit of reasoned, balanced analysis.

Working with a wealth manager can help you by:

• Working with you to develop a formal investment strategy (Investment Policy Statement)
• Helping you select an appropriate asset allocation mixture
• Rebalancing portfolios when necessary so that you are not taking too much—or too little—risk

Helping you execute your chosen strategy with discipline can minimize hasty decisions and emotional mistakes, which can reduce your returns.

WEALTH MANAGERS WORK ON ALL SIDES OF YOUR BALANCE SHEET

Working with a wealth manager can add extra benefits simply because they are in the business of helping you increase and preserve your wealth.

High-quality wealth managers can do this by providing:

• Comprehensive financial planning to help protect your wealth from both unforeseen and expected events
• Tax strategies to help you reduce your tax liability and possibly increase your after-tax returns
• Advice regarding large financial transactions, such as the sale of a business or a highly appreciated property, so you have professional advice to make the most prudent decisions
• Planning charitable contributions
• Exploring approaches for multi-generation wealth transfer

These are just a few of the reasons you must choose your wealth manager carefully.

CHOOSING THE RIGHT WEALTH MANAGER

As you can see, working with a wealth manager has the potential to give you access to many resources. But the caveat is that you have to choose carefully since not all wealth managers are alike.

Be sure to look for firms that have fiduciary investment advisors, a reputation for integrity, and a demonstrated ability to help build and protect wealth. That usually means decades of experience, not just a few years.

Where to get started?

Here are previous articles to assist with finding a firm you can work with to help you to attain all that is important to you.

Is your financial advisor an asset manager or an asset gatherer?

What is a fiduciary financial advisor and why do you need one?

Once you narrow your list to a few prospective firms that meet your criteria, take time doing your research and evaluating a fit. Whatever time it takes is worth your while since the right choice can help you to better achieve your goals.

GET IN TOUCH WITH WEALTH MANAGERS AT ICC

ICC is a leader in wealth management services. With a mission to provide clients the independent, unbiased, transparent service they deserve, our financial planners in Las Vegas are ready to help. If you have $1,000,000 or more in investable assets, contact us today to get started and learn more about growing your wealth safely.

[i] Duggan, Wayne. Why Investing as an Individual Is So Difficult. MarketWatch, December 2019. https://www.marketwatch.com/story/why-investing-as-an-individual-is-so-difficult-2019-12-11

[ii] Moss, Wes. Is It Worth the Money to Hire a Financial Advisor?. The Balance, November 2018. https://www.thebalance.com/should-you-hire-a-financial-advisor-4120717

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The Barron’s Top 1200 Financial Advisors by State ranking is based on data provided by over 4,000 of the nation’s most productive advisors. Factors included in the rankings are: assets under management, revenue produced for the firm, regulatory record, quality of practice, and philanthropic work. There is no cost or fee to participate in this survey. The questionnaire is completed and submitted online.

The Barron’s Top 100 Independent Advisors ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms, and the quality of the advisors’ practices. The scoring system assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor. There is no cost or fee involved to participate in this survey. The questionnaire is completed and submitted online.

The Forbes “America’s Top Wealth Advisors” ranking was developed by SHOOK Research and is based on in-person interviews and telephone due diligence meetings and a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations and quantitative criteria, including assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary and advisors rarely have audited performance reports.  Rankings are based on the opinions of SHOOK Research, LLC and not indicative of future performance or representative of any one client’s experience. Rankings and recognition from Forbes are no guarantee of future investment success and do not ensure that a current or prospective client will experience a higher level of performance results, and such rankings should not be construed as an endorsement of the advisor.  Neither Forbes nor SHOOK Research receives compensation in exchange for placement on the ranking.

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