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Dispelling Four Common Wealth Management Misconceptions

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Sheraz Iftikhar is the President and Chief Executive Officer of Arch Global Advisors.

With the number of millionaires in the U.S. rising 85% from 2009 to 2018, many people are looking to invest and grow their assets for the future. And with over 18 years of experience in wealth management, I have learned that many are unsure about what wealth management is. Creating a wealth management strategy entails meeting with a qualified advisor to formulate an individualized financial plan that considers all aspects of your financial needs and combines different services to help you reach your goals.

There are many misconceptions to dispel surrounding wealth management. Below, I discuss a few common ones.

Misconception 1: Investing in high-profile companies equates to a balanced portfolio.

Many investors have relied on high-profile growth companies, such as Amazon, Tesla, etc., over the past 10 years, and the strategy has paid dividends. However, this strategy only works if these stocks continue to rise. There has been a flight from growth investments to value investments this year, and retail portfolios that have relied heavily on growth stocks have felt the effects of it.

Not every investor is an expert in all aspects of their strategy, which is why employing a professional wealth management advisor can help. There are also basic strategies you can employ to help balance your portfolio on your own. Instead of just choosing high-profile growth companies, you can invest in value stocks and stocks of different market caps and have exposure to a variety of sectors. Furthermore, investing in an exchange-traded fund also allows you to have your assets diversified and actively managed without specifically using a wealth manager.

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Misconception 2: It is expensive to hire a wealth manager.

Similarly, many people looking to start an investment portfolio or a wealth management strategy believe it is expensive to hire a wealth advisor. However, it’s important to weigh the cost of management with the potential investment returns and risk mitigation a wealth manager can provide through creating a balanced financial strategy. Entrusting your money and financial strategy to a wealth management expert has the potential to save you money, because through their knowledge and experience, a wealth manager can help effectively allocate your wealth, efficiently compound your investments and create long-term financial goals to set you up for success.

Wealth management firms charge fees in different ways. One of the most common is a percentage of assets. This means the firm bases its charge on how many assets it manages for you. This type of fee often ranges from 0.50% to 2% per year, depending on the firm and your investment portfolio.

Make sure to review the compensation structure of a firm before engagement. It’s imperative to work with a firm that benefits only when investors benefit. When a wealth management firm’s goals are inextricably linked to the goals of its clients, the firm only succeeds when the client succeeds.

Misconception 3: Financial plans and wealth management teams are only for the ultra-wealthy.

Many people think wealth management teams are only available for the ultra-wealthy, which is not true. Wealth management can be for anybody who wants to actively grow their investments and assets and have professional support throughout the process. However, many people often underestimate the importance of wealth management planning.

When deciding whether to use a wealth manager, there are many factors to consider, which range from retirement planning to estate planning and asset protection. For example, you can ask yourself: Have I saved enough to have an income once I retire? Or, are my assets protected to the best of my ability, and will they be received by my loved ones if something were to happen to me? If you’re not happy with your answers, it might be time to work with a wealth manager.

Misconception 4: Larger wealth management firms offer better services than smaller firms.

People often think it is more beneficial to create a wealth management strategy with a bigger company rather than a smaller firm. However, both options have their benefits.

Larger institutions do not necessarily cater to individuals with less than $5 million in investable assets or may provide limited services to such clients, whereas smaller boutique firms will typically assist clients with investable assets below $5 million. Furthermore, the nature of boutique firms means advisors have more time to spend with clients one on one when creating a custom financial plan and can provide curated services that larger firms might not be able to offer.

However, there are also benefits of working with a larger firm. Some individuals prefer the standardization of larger firms, their credibility and how they function. Larger firms also have larger teams, which enables a client to get in touch with multiple people at any time, rather than just one individual financial advisor. In the end, deciding whether to use a small firm or a large firm comes down to your personal preference and where you feel you are more valued.

Final Thoughts

There are many misconceptions to dispel surrounding wealth management. Even seasoned investors can benefit from consulting with a wealth management specialist to ensure they have optimized their ROI as well as taken into account their entire financial picture.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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