Unless you’re really sophisticated financially, you may not really know exactly where you fall in the overall wealth spectrum, and that can make finding the right money manager hard to do. Here’s what the experts have to say about how prospective clients stack up.
How Wealthy Are You?
You may have worked hard all your life and saved lots of money, but what’s an exorbitant amount to you may not be as impressive to wealth managers used to dealing with billionaires.
That may sound disappointing – and a little insulting – but the fact is that different wealth advisors cater to different financial categories.
Wealth levels can be divided in many ways, but you can typically break them up along the lines of someone who has a portfolio of under $500,000, $1 million, and more than $10 million.
Less Than $500,000
If you have $5,000 to invest, you’re unlikely to be able to recruit the services of a big wealth management firm, because the work they need to put into managing your money is, quite honestly, not worth the return they’ll get out of it.
That’s not to say you shouldn’t be investing – or even more importantly, learning about how to invest.
You can talk to friends, do research online, or if you’re someone whose parents have their own planner or are part of a family group, you may try speaking to the family advisor about what you need to do to set yourself up for the future.
It’s a good way to learn about how things work, invest regularly, pay off debts and start building a relationship with the professionals who will eventually help you manage your money if you join the family business.
“When people come in and refer to us and they really don’t have the capital or the income where we can really get to work with them, I will give them a quick half-hour review, read the riot act to them in terms of what they should and shouldn’t do, give them some reading material, and then send them back to their local bank with specific instructions,” said John Horwood, director of wealth management at Richardson GMP in Toronto.
It may be as simple as telling them to open a TFSA and put money into certain investment vehicles, he adds, but it helps set people on the right track and ensure they are well taken care of if they are dealing with a bank whose employees’ level of competency may vary.
Wow, You’ve Got $1 million!
When you start getting into higher tax brackets, you may want to look into using a financial planner or wealth manager, because while the first stage is about learning, at this level, the goal is to grow your portfolio.
“Most people usually want an unbiased portfolio manager/investment counsel,” said Adrian Mastracci, a fee-based adviser at KCM Wealth Management in Vancouver.
“At a million dollar portfolio, they don’t want to be sold something. They want to know that that portfolio has been designed for them and meets their criteria, goals, etc.”
Questions to consider at this stage include taking a look at family goals, plan for retirement and evaluate diversification needs.
The $10-million-plus club
When you get to the higher levels of wealth, you want to have a solid team in place and be really aware of what they are working towards.
Planning becomes more complicated, and can include business succession and estate planning as well as more sophisticated wills and questions about capital preservation or alternative investments.
The emphasis tends to move to family management, and your team is likely to include lawyers, money managers, bankers and insurance professionals.
“It’s not just the investing or the money, it’s about everything around it,” Mastracci said.
Plan Ahead, At Any Level
No matter what wealth category you fit into, it’s crucial to plan ahead.
“Traditionally, it’s a time and money equation – when you don’t have a lot of money, quite often, you do have a lot of time,” said Horwood.
“If you can set up the tax-free compounding, you get a remarkable result.”
It’s also important to remember to plan for liabilities, like health issues, and to keep in mind that the basic financial decisions you make at the very early stages can have a huge impact down the road.
Pick The Right Partner
When it comes time to choose a wealth advisor, Horwood says that while professional designations matter, reputation is often the most important aspect to keep in mind.
“Mostly it’s about referrals. I’d just advise people to go and talk to their friends or people they know who are smart financially or successful, and ask them who they use,” he said.
“Have they done a good job for you? Are they happy?”
Also, be willing to ask them the tough questions: what am I paying and what am I getting for it?
“If you ask those questions you’ll soon discover whether you’re on the right track or whether you need to make a change,” Horwood said.