Wealth management is a comprehensive service focused on taking a holistic look at a client’s financial picture, including services such as investment management, financial planning, tax planning and estate planning.
Wealth management is a holistic service that focuses on helping mid- to high-net-worth clients grow their wealth, manage their liability exposure and devise strategies to pass their wealth on to their designated heirs.
Wealth management services take a comprehensive approach to the financial situation of higher-net-worth clients, versus working with an advisor focused solely on risk insurance or investment management.
Some typical services offered by wealth management firms include:
- Investment management and advice
- Comprehensive financial planning
- Tax planning including structuring advice
- Cash flow management
- Employee share schemes and company benefits
- Superannuation and Retirement planning
How much money is required for wealth management?
There are no hard and fast rules regarding how much is required for an investor to obtain wealth management services. That said, a minimum of $1 million to $5 million in assets is the range where it makes sense to consider the services of a wealth management firm. Much below that and it might be hard to justify the expense of this type of service.
Wealth management strategies
Wealth management strategies will vary based on the specific needs of the client. Overall, the reason to use a wealth management firm is to seek strategies to help maintain and grow your total wealth.
This can mean different things to different people. Some individuals are more focused on keeping their wealth than growing it, for example, and so the wealth manager would design safer strategies focused on that objective.
In general, wealth management entails coordinating all the moving parts of a client’s financial situation into a comprehensive wealth plan. This might include the client’s tax situation, investments and retirement planning.
Examples of wealth management strategies include:
- Improved structure for managing your personal cash flow and establishing financial buffers.
- Refinanced your home loans for better rates and potential equity release for further investing.
- Developed a diverse investment portfolio including shares, managed funds and property.
- Strategising your employee share schemes, RSUs and company benefits.
- Optimised your superannuation investment and contribution strategy.
- Coordinating an optimal tax planning strategy into their wealth planning.
- Safeguarding your income and family through personalised insurance plans.
- Ensuring that the client’s estate plans reflect their desires.
- Developing a succession plan for business owner clients.
For many, super is one of the biggest investments for retirement. However, investing outside super may be another way to effectively manage your wealth and achieve the lifestyle you want in retirement. Remember, you can usually only access your super when you reach your preservation age, so if you want to retire earlier, it could be a problem if all your money is tied up in super.
Investment 101: The basics
The assets that sit underneath your investment options are generally split into two categories. Understanding these types of assets is crucial for successful wealth management.
Defensive asset classes have a lower potential rate of return over the long term but are also generally less volatile and have less potential to lose value than growth assets. They include:
- Fixed interest: that is, corporate or government bonds. Bonds allow you to lend money for a set period of time and receive interest payments at regular intervals in return. Your initial investment is paid back at a set time.
Growth asset classes have the potential to earn a higher rate of return over the long term than defensive assets but are also generally more volatile than defensive assets. They include:
- Shares: part ownership in a company.
- Property securities: investments listed on the Australian Stock Exchange, providing exposure to a portfolio of direct property investments.
- Direct property: buying a residential or commercial property to rent out.
- Alternative assets: covering a wide range of investments that are not considered traditional. Some examples include hedge funds, infrastructure and gold.
You can also manage wealth through investment vehicles like:
Managed funds pool money from different investors into one fund that’s managed by a professional investment manager. You can invest in a fund that invests in one asset class, like a shares fund, or a fund with a mix of different assets, like a growth or balanced fund.
Exchange traded funds
Exchange traded funds (ETFs) are passive investments that don’t try to outperform the market. The role of the fund manager is generally to track the value of an index or commodity. ETFs can help to diversify your investments and are usually cheaper than managed funds.
Investing in a constantly changing environment
Investment markets are impacted by myriad factors – from what’s happening with the local economy, to geopolitical changes, to who is managing your portfolio. Wealth management through investment exposes you to volatility that needs to be managed adequately – because, ultimately, your own behaviour has as big an impact on your investment success as changes in investment markets.
What’s important to remember is that there’s opportunity as well as risk in volatility. And it’s a great time to rethink your investment strategy and refocus on what you want to achieve.
- Stick to the key wealth management principles that matter the most.
- Think long term: focus on staying the course and not reacting with every drop and rise in markets.
- Diversify: spread your money across a range of markets and types of investment – that means you’ll help to reduce risk and may be able to realise more opportunity as markets fluctuate.
- Invest for your life stage: if you’re younger, make sure you invest in growth assets to help make the most of your time in the market. If you’re closer to retirement, focus more on investments that are conservative and may protect your wealth.
- Ask for help: if you don’t have time to research and manage your wealth through a comprehensive portfolio, find help. You can work with a financial advisor to structure a suitable portfolio, or invest in a managed fund where the investment decisions are made for you.
Strategies for non-super investments
The following strategies are recommended for those seeking to manage their wealth outside of super and access the benefits of wealth creation before they reach preservation age.
1. Compound returns
Compound returns occur when you earn interest on your savings, then interest on the interest you have earned on your balance, creating a larger balance each month. It’s sometimes called re-investing your earnings, and most investments have this feature. If you save regular amounts in a disciplined way, you can accumulate a far larger amount than in a simple interest account. This wealth management strategy works even better in the long term and can also help you ride out market ups and downs.
2. Growth assets
Investing in growth assets such as shares or property may be a profitable way to manage your wealth. Growth assets have the potential to grow in value over the long term and outpace inflation. Additionally, your dividend income can increase over time as share prices rise.
3. Diversification of assets
Diversification of assets means investing a percentage of money in a mix of asset classes (e.g., shares, property and bonds). By using this wealth management strategy, you could achieve more consistent investment returns – especially over the long term. But remember that past performance doesn’t indicate or guarantee future performance.
4. Income splitting
Income splitting can help manage tax by buying assets in the name of your partner if they pay tax at a lower rate than you. By using this wealth management strategy, you could pay less tax on investment earnings and accumulate a larger amount as a family unit.
5. Use borrowed money to build wealth
Gearing simply means borrowing money to invest. Gearing can be used to accelerate the process of wealth creation by allowing an investor to make a larger investment than would otherwise be possible – but remember, losses can amplify as well. The borrowed money can be invested in a number of ways, including direct shares, property and managed investments.
There are many factors to consider when it comes to investing your wealth. It may be difficult to anticipate all possible risks when choosing the right wealth management strategies for your financial situation. Consult our professional wealth management services if you need to.
How do wealth managers help individuals grow and protect their assets?
Wealth managers assess individual financial situations, create personalised plans, offer investment advice, and actively manage portfolios to optimise growth and mitigate risks.
What are some common investment strategies used in wealth management?
Strategies include asset allocation, diversification, risk management, tax optimisation, and incorporating various investment vehicles based on clients’ goals and risk tolerance.
How can I diversify my portfolio for effective wealth management?
Diversification involves investing across different asset classes like stocks, bonds, real estate, and commodities to spread risk and enhance potential returns.
What role does risk management play in wealth management?
Risk management aims to assess, mitigate, and manage potential risks that could affect investment portfolios, ensuring alignment with clients’ risk tolerance and goals.
Can wealth management advisors assist with estate planning and inheritance issues?
Yes, many wealth management advisors offer services related to estate planning, helping clients navigate inheritance issues, minimise taxes, and ensure assets transfer smoothly.