The Type Of Financial Planner Rich People Use To Grow Their Net Worth

It's never too early to start saving for retirement, and those seeking advice on the best ways to do so may turn to a financial advisor for help getting started or even to manage an already existing portfolio. However, high-net-worth individuals tend to use a private wealth manager to manage their portfolio rather than a typical financial advisor. That's because private wealth managers tend to be better at creating customized plans to manage and grow an already-existing net worth rather than simply optimizing more routine 401k accounts or other investment contributions for long-term gains.

Northwestern Mutual notes that wealthy investors tend to prefer wealth managers because they're more qualified to build plans with specific considerations in mind such as wealth transfer to younger generations, philanthropic goals, and tax planning among other factors. Generally speaking, contributing to a typical retirement account isn't the bulk of the wealthy's financial needs — especially since most have far more to invest than the annual 401k and IRA contribution limits allow for. With that said, there are also other reasons why the wealthy turn to private wealth managers.

Smart Asset defines a high-net-worth individual as someone with investable assets totaling over $1 million. These assets can be cash, stock, or other investments that can be quickly liquidated. These people may be certified investors, or they may simply have money to hang onto — or potentially want to grow. That wealth may have been accumulated through a lifetime of diligent saving and investing, by being an entrepreneur who has sold their business, or by inheriting a large sum from a deceased relative. Regardless of how the person became wealthy, the goal is to manage their riches as effectively as possible while not paying more than necessary in taxes.

Therefore, a high-net-worth individual requires a vastly different investing strategy due to one major distinction: while most people invest as a means to grow wealth for later in their life, a high-net-worth individual seeks to manage already existing wealth. In some cases, they may be looking to distribute their wealth by giving to charity or even creating a trust that will help their children avoid probate. A typical financial advisor may not be qualified or experienced in enacting these strategies — hence the onboarding of a private wealth manager.

Another big factor to consider is payment. Financial planners and advisors tend to be more approachable in part because of how they are paid. This can happen through hourly fees, flat fees, commissions or, in some cases, a percentage of total assets under management. Private wealth managers, on the other hand, are more frequently paid based on total assets under management and a client must typically maintain a minimum asset level to work with them.

Private wealth managers tend to work with a certain sector of clientele. One office may be skilled in specific areas like business succession planning while another might specialize in handling large sums of incoming money for distributions, tax payments, and management (athletes who receive sponsorship checks or film stars who receive annual or quarterly royalties, for example). In general, a private wealth manager will also be more qualified to handle end-of-life planning for holders of large assets — and the oftentimes complicated tax strategies that tend to surround them.