Do I Need Personalized Wealth Management?

 Personalized wealth management means working with a financial planner or investment advisor toward your goals, utilizing financial planning, investment management, retirement planning, and other services. 

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Given the increasing sophistication of artificial intelligence (AI) and data analytics, people may feel they can perform financial planning themselves with the help of digital services. After all, Amazon and streaming services like Netflix and Spotify can actually send you personalized recommendations via their algorithms, and many people view these recommendations as helpful aids to shopping or what they’d like to view or listen to. Isn’t wealth management the same?

Well, while AI and data analytics are definitely part of sophisticated wealth management, used alone, they can’t optimize your financial life in the way working with a CERTIFIED FINANCIAL PLANNER™ professional engaged in wealth management can. Why? Several reasons. 

Personalized Wealth Management Works With Your Individual Goals

First, your individual goals are unique. Computerized services, or robo-advisors, focus on segmentation, but not personal service. If you rely solely on AI and data analytics services, you will likely receive roughly the same advice that everyone of your age cohort, income, and level of assets receives. 

But your goals may be very different from people who share certain datasets with you. Let’s say you are 30 but want to retire at 45 and live in Bali. Your friend is 30 but wants to start her own business in five years. Her goal is to work as head of the business until she nears retirement age and then bequeath the assets generated by the business to a charity she founds. Your respective goals for retirement savings and investment savings are likely to diverge significantly in almost every way. 

What if you are planning a large family and therefore want a large custom-built home? Your goals and plans are likely to be very different from those of a two-income couple who want to put most of their money into travel experiences.

Second, a personalized wealth manager or financial advisor needs to take the time to know your financial situation in detail, in order to provide customized advice. Financial planning covers the following seven areas:

1. Your budget, including a detailed picture of your monthly income and expenditures every month, quarter and year.  Which also includes developing a robust savings plan.
2. Your investments
3. Your retirement planning
4. Your educational savings plans, for children and grandchildren
5. Risk management, such as insurance (including life insurance and insurance for assets such as homes and cars)
6. Estate planning, such as wills outlining your plans for your beneficiaries and powers of attorney for your own later life planning
7. Goal setting, income tax planning, and possibly executive compensation planning.

One of the benefits of personalized wealth management can be customization that AI and analytics would be unable to do. Your income may indicate significant disposable income, for example, but you may, in fact, have student loans that decrease the income you can devote to wealth accumulation. Financial advisors can recommend plans to decrease debt and build wealth.

They can also make sure you keep your plans up to date vis-à-vis changes in your life. If you recently had a child, for example, they can proactively ask if you want to start a 529 educational savings plan or similar plan. If you recently went through a divorce and remarriage, they can proactively inquire about whether your will and powers of attorney should be updated to reflect new family relationships.

Wealth advisors can also discuss your plans and desires vis-à-vis the investment environment and climate. A wealth manager should send you periodic statements of your investments and retirement plans. They should discuss any changes in detail, including performance and any changes in recommendations. 

The stock market, for example, recently dipped into bear market territory as a result of the coronavirus and lockdown orders throughout much of the country. A wealth advisor can discuss whether you should stay the course or make changes – and advise you on what changes if so, including potential moves to other asset classes.

Third, personalized wealth management can make sure you’re not overlooking any financial or related area in your goals and plans in a way that using digital advice alone is not able to do. What if you’ve never even realized some financial moves have relevance to your life? 

You may never have considered savings for children’s educational needs, for instance, simply because you were unaware of tax-advantaged methods to do so! If you’re thinking of building a large home, you may be unaware of the tax implications once your property is worth more than $1 million. 

A personalized wealth manager in this sense provides something of a concierge service, by bringing your attention to things you may not know about. Yes, the algorithms of Amazon, Netflix, and Spotify can generate suggestions based on your preferences. But if you don’t already know you like a particular product or service, the algorithms can’t think to tell you about it.  

What To Look for in a Wealth Manager

It can be somewhat confusing to look for a wealth manager or wealth management firm. Many different titles are used, including wealth managers, investment advisors, portfolio managers, asset managers, financial advisors, and so on. So what should you look for?

It’s a good idea to ascertain that the advisor or manager has a CERTIFIED FINANCIAL PLANNER™ (CFP®) designation given to people who have met the CERTIFIED FINANCIAL PLANNER™ Board of Standards requirements. These requirements include knowledge in investment advice, retirement planning, educational planning, estate planning, tax considerations, and several years of experience in the industry. 

At Financial Freedom Fee-Only Wealth Management all firm members are CERTIFIED FINANCIAL PLANNER™ professionals.  We believe that the education, examination, and experience requirements of the CFP® program are a required minimum to provide outstanding wealth management services.

CFP®s are also required to follow a fiduciary standard, meaning that they must always place your financial well-being above their own. While it may seem that all financial professionals and wealth advisors should do this, many are held only to a suitability standard. A suitability standard means the advisor must consider whether a given investment is suitable for the goals you’ve outlined. 

But under the suitability standard, brokers can trade your accounts with an eye to certain products being pushed by their companies but not necessarily the most suitable for you, for example, or trade to increase their own commissions only. Fiduciaries would not be able to do this, because an inadvisable product and increased commissions are contrary to your own financial interests.

For more information, we are here to answer any questions you might have. Contact Financial Freedom Fee-Only Wealth Management today!