What is Wealth Management?
Listen to the Podcast Here: 3. What is Wealth Management?
What Does Wealth Management Mean to You?
When you hear the term ‘wealth management’, what do you think of? It’s probably not exactly what we would hope, which is why we want to talk some time to explain what wealth management means to us.
Maybe when you hear the term ‘wealth management’ you think of some old guy sitting behind a big mahogany desk in a corner office on Wall Street trading peoples’ accounts.
That’s definitely not us.
What Wealth Management Means to Us
To us, wealth management is helping someone with all aspects of their financial life. At a high level, this involves helping a client gain an understanding of where they are (their current situation), figuring out where they want to go (their goals), and determining the steps need to get there (the action items and recommendations to achieve those goals).
Wealth management is made of two components: financial planning and investment management.
We like to think of it like a formula (because of course we do) that looks like this:
Financial Planning + Investment Management = Wealth Management
Rather than only focusing on investments as many people may think a wealth management firm would, we start with creating a financial plan that serves as a guide and tells us how a client’s investment portfolio should be managed.
Financial planning comes before investment management in this formula for a reason. It’s impossible for us to know how to invest a client’s money if we don’t first know what their goals are and what their entire financial situation looks like. The financial plan provides guidance on how the portfolio should be invested.
And it’s not only for rich people. Look at us, we specialize in working with people in their 30s and 40s.
How Migration Wealth Management Works in Our Clients’ Lives
While this may be a cliché used too often in the financial service industry, it’s easy to help portray how we work with clients by saying that we kind of act like the quarterback in our clients’ financial lives. We can call the plays and do some things, but we can’t do everything. The quarterback can’t throw the ball to themselves.
Helping a client with wealth management is kind of like we’re helping put a puzzle together, but we don’t have all the pieces. We have the box and can see what the finished picture is supposed to look like. The client has the pieces, but some of them are missing. Other professionals (attorney, CPA, insurance broker, etc.) have the rest of the pieces to finish the puzzle so we have to help the client get those from them.
What is Financial Planning?
There are 9 key, high-level areas of financial planning that we dive into with clients. We’ve listed those here as well as some more of the details that we dive into. This isn’t an exhaustive list, but we think it does a pretty good job of helping you understand what we mean when we say ‘financial planning’.
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Define & Refine Financial Goals
- Retirement Goal
- Travel Goal
- Home Purchase Goal
- Vehicle Purchase Goal
- College Education Goal
- Gifts to Children Goal
- Other Goals
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Cash Flow Planning
- Reverse Budgeting – Make sure that you are investing enough and paying down debt appropriately
- Bonuses & Raises – Making sure to invest and not spend it all
- How much home can you afford?
- Daycare – Being intentional about funds once kids are out of day care
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Debt Paydown Prioritization
- Pay down debt vs invest
- Mathematically optimal vs emotionally optimal
- Debt avalanche approach vs debt snowball approach
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Retirement Planning & Savings
- How much do I need to invest to reach my goal?
- What accounts should I be investing in?
- What is my probability of successfully reaching my goals?
- Monte Carlo analysis
- How do different factors affect my probability of success?
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Insurance & Risk Management
- Emergency Fund
- Insurance
- Review and analyze policies
- Make recommendations
- Refer to brokers
- We do not sell products
- Life Insurance Analysis & Review
- Death benefit
- Term
- Term vs permanent
- Premiums
- Riders
- Disability Insurance Analysis & Review
- Definition of disability
- Income replacement %
- Riders
- COLA
- Increase option
- Residual
- Others
- Homeowner’s Insurance Analysis & Review
- Premiums
- Replacement cost or ACV
- Amount of coverage
- Property & liability
- Deductible
- Roof replacement
- Other riders
- Auto Insurance Analysis & Review
- Premiums
- Renewal frequency
- Liability limits
- Comprehensive and collision coverage make sense?
- Umbrella Policy Analysis & Review
- Policy needed?
- Amount appropriate?
- Premium appropriate?
- Health Insurance Analysis & Review
- Compare components of all available policies
- Premiums
- Deductible
- Max OOP
- Employer HSA contributions
- Compare components of all available policies
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Tax Planning
- Tax planning, not tax preparation
- Forward-looking planning, not backwards-looking tax filing
- Review the return
- Retirement savings strategies
- Roth vs pre-tax
- Which accounts to use?
- Charitable giving strategies
- Tax planning, not tax preparation
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College Education Planning
- Help the clients come up with a strategy
- How much to plan on paying for?
- How to save / pay for it?
- 529 Plan
- Roth
- Brokerage
- Cash flow
- Other
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Employee Benefits Optimization
- Life insurance
- See above
- Disability insurance
- Definition
- Income replacement %
- Need supplemental?
- Health insurance
- See above
- Is there a Health Savings Account eligible plan?
- Does the employer contribution?
- Opportunity to use the HSA like a retirement account
- Dependent Care FSA
- Equity Compensation
- Employee Stock Purchase Plan
- RSUs
- Options
- 401(k)
- Life insurance
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Estate Planning
- Estate planning, not document preparation
- Review documents and make sure they align with what we hear clients say they want
- Help implement by helping clients update beneficiaries and making sure other assets are titled correctly
- Help ensure that client’s wishes are carried out
- This includes what happens if we pass away
- And what happens if we become incapacitated and aren’t able to make financial or medical decisions for ourselves
- Last Will
- Living Will
- Health Care Power of Attorney
- HIPAA
- General Power of Attorney
- Trust
What is Investment Management?
Investment management is more likely what many people think of when they hear the term ‘wealth management’. While the financial plan always comes first and is used as a guide to tell us how to invest, the investment portfolio helps ensure that the plan is funded.
While most financial services firms ignore clients’ employer-sponsored retirement plans (401K, 403B, 457, etc.), which can often be the biggest investment asset for people in their 30s and 40s, we manage these accounts for our clients as a part of their overall portfolio.
Our investment philosophy is one based in evidence. What does that mean exactly?
We don’t try to time the market, we don’t purchase individual securities, we follow a rules-based strategy that tells us when it’s time to trade, rather than trading based on intuition or predictions, and our portfolios are diversified among many characteristics.
Interested in Learning More?
Don’t hesitate to reach out. We’d love to have a conversation with you about financial planning, investment management, and any questions that you may have!
