The best way to choose from among the many wealth management firms Washington D.C. has to offer is to think of them as partners in a long-term relationship. The top financial advisors help people to build on their financial success, but also pass it along to the future. And that applies whether the individual has just made her first million or is a high net worth investor nearing retirement.
What is wealth management?
First, it’s important to understand that investment management is only one part of wealth management. True wealth management involves offering individuals a holistic approach to investing, along with many other services, such as insurance, charitable donation management, retirement planning, estate planning, tax planning, and intergenerational wealth transfer.
While wealth management certainly includes investment advisory service, it goes far beyond asset allocation and quarterly returns.
High net worth individuals seek out wealth management firms because they want one person, or one office, to look at the big picture. A high net worth individual owns $1 million or more in investable assets, or liquid assets. (Liquid assets include stocks, bonds, and mutual funds – things that can be quickly converted into cash.) As the level of wealth grows, it becomes too complicated and far too risky to not take an integrated approach.
One wealth advisor might not handle every aspect of a client’s business personally. She might, for example, specialize in asset management and consult with an expert on trusts as needed. The key is that the wealth advisor helps a client develop an overall plan for his financial future and makes sure that everything is done in harmony with the plan.
Someone looking for wealth management services might find themselves comparing people with a variety of titles: financial consultants, financial planners, financial advisors. The titles are interchangeable.
One of these financial professionals might operate solo as a private wealth advisor. Many of them work as part of a team for an investment firm, a bank or a registered investment advisory firm.
The key for wealth advisors is that they treat each small part of a client’s needs in relation to the overall financial goals.
How do you choose a wealth manager in D.C.?
The Washington, D.C., metro area is the third wealthiest in the country, with a median household income of $105,659 a year and median home value of $446,300, according to Moneywise. And DC has the eighth-highest number of ultrawealthy residents in the world, according to MarketWatch. (The full list is New York, with 11,475 ultrawealthy people; followed by Hong Kong; Tokyo; Los Angeles; Chicago; San Francisco; Paris, Washington, D.C.; Osaka, Japan; and Dallas.)
There is no shortage of financial advisors in Washington, drawn there by all that money needing to be managed. But how do high net worth clients find the best wealth management firms Washington, D.C., has to offer?
Here are 10 things to look at when considering a wealth management firm.
1. They are a fiduciary
While titles and job labels are sometimes confusing, the distinction of being a fiduciary is simple. It means that the advisor must act in the best interest of the client. A fiduciary has obtained special training and has pledged to avoid conflicts of interest and always work in the client’s best interest. The fiduciary promises to never steer a client a certain way or sell the client something that does more for the advisor’s bottom line than the client’s.
The surest way to know if an advisor is a fiduciary is to ask. Then make sure you get it in writing. If the financial adviser works on a fee-only basis, that also is an excellent sign. The National Association of Personal Financial Advisors (NAPFA) provides a search portal for finding fiduciary advisors.
Few clients want to put their millions and their futures in the hands of advisors who are learning on the job. How long has the firm been in existence? How much experience does the firm’s principal have? If there is a specialty area that you need your wealth management firm to cover, how experienced is the person who would handle that?
3. Accreditations, awards, and licenses
Look for certifications that indicate the advisor is a fiduciary: Certified Financial Planner (CFP); Registered Investment Advisor (RIA), which is a fiduciary company registered with the Securities and Exchange Commission; Investment Advisor Representative (IAR), which works for an RIA; Chartered Financial Consultant (ChFC); Accredited Investment Fiduciaries (AIF); and a Certified Financial Fiduciary (CFF).
A Certified Private Wealth Advisor (CPWA) has at least five years of professional client-centered experience in financial services or a related industry and has taken special training in how to advise clients with a net worth above $5 million.
4. Fee structure
Firms with a fee-only (as opposed to fee-based or commission-based) compensation structure are most likely fiduciaries. (Read on to learn more about fees.)
5. Look at reviews
What do current and former customers say about them, online and in any other venue? Ask your circle of friends and associates about the firm. Have any complaints been filed against them with regulatory bodies?
6. Assess services
Do they offer what you value, and do they have credentialed, experienced personnel in the areas that mean the most to you?
AUM stands for assets under management. You want your advisor to have experience handling big accounts. You might worry, however, about getting lost in the mix with a giant firm. A large firm may be less flexible and may not offer an investor as much choice in the investments they make due to underlying profit motivations. Small firms or independent managers may offer greater flexibility, but lack the resources and connections of a larger firm.
8. Client count
Firms that tend to work with individual clients rather than institutional clients most likely will be more oriented toward working with a high net worth individual.
9. Client-advisor ratio
Look for an investment advisory firm that has a lower ratio of clients per advisor. It’s a sign that you might get more personalized attention.
10. Look for problems
Check for any signs of trouble by looking up the firm or advisor through the websites of the Financial Industry Regulatory Authority, or FINRA, (www.brokercheck.finra.org) and the Securities and Exchange Commission (www.advisorinfo.sec.gov). You can see whether there have been any disciplinary actions and if they are in good standing.
How much does wealth management cost?
Typically, clients with less than $1 million under management pay about 1% of assets managed. Clients with over $10 million under management may pay around 0.7 %. Some companies charge a fixed fee that can range between $10,000 and $60,000, depending on the size of the account and services.
Understanding how your financial planner/advisor or wealth management firm is compensated is an important component in determining who will be entrusted with your investment portfolio.
First and foremost, look for a firm that is transparent about compensation. There are three common types of compensation models.
The firm or advisor is paid directly by clients for their services. This compensation structure is designed to minimize conflicts of interest and make sure that the advice you receive is in your best interest rather than in the interest of the firm. A fee can be based on an hourly rate, a percent of assets managed or a quarterly or annual retainer.
This hybrid model is still rooted in the fee-only approach but depending on the investment products you are provided with your advisor or firm may get a commission for some of the services or products they offer you. You want to make sure there is a clear understanding of how additional compensation is derived above and beyond any fees you are already paying.
This payment model essentially makes your advisor a salesperson who may not put your best interests ahead of his own or the firm’s.
Once you understand the fee structure that a firm or advisor uses, also find out if these fees, as well as services, roles and responsibilities, are captured in a contract. While a contract is not required, having one can keep expectations clear and help avoid confusion down the road.
The trust factor
A wealth management firm like Cope Corrales can help high net worth individuals to strategically manage, grow and sustain their investment portfolios. The firm was named as one of Washington, D.C.’s top 37 wealth management firms by Expertise.com. Remember, you are selecting a firm that you will build a long-term relationship with and that can have a deep impact on the trajectory of your financial well-being.