Wealth Manager vs. Financial Advisor
What’s the difference between a financial advisor and a wealth manager? The short answer is: there isn’t one. Yet, it’s one of the most common questions we get. This is a story all about how the confusion came about in the first place. FWIW: East Philadelphia has nothing to do with it.
What’s the difference between a financial advisor and a wealth manager? The short answer is: there isn’t one. Yet, it’s one of the most common questions we get, and if you’ve found your way to this blog through Google, you know that “financial advisor vs wealth manager” renders about 70 million search results. So why all the confusion? In order to answer that question, we have to throw it back a bit.
Financial advice…minus computers
Like most things, financial advice was much simpler before computers existed. In fact, it wasn’t really “advice” at all. Before Robinhood and Investopedia and subreddit threads of stock analysis from guys who consider investing a “hobby”, most people didn’t understand investing. There was a small group of people who knew how the markets worked, and their job - as we mentioned earlier - was simple.
Step 1: receive funds from people looking to invest their money
Step 2: invest it in the market
Step 3: pay out dividends
Doesn’t seem like there was much advice being offered, right? That’s because there wasn’t, and thus the term “wealth manager” was perfectly applicable to the job being performed. Everything changed when the internet was born.
Suddenly, the functions of money markets and the strategies used to grow one’s wealth became more commonly known. A plumber from Arkansas could, hypothetically, come to possess the same level of knowledge about investing as a big-shot New York banker. As the knowledge barrier eroded, wealth managers found themselves facing a Darwinian tale as old as time: adapt…or die.
From wealth manager to financial advisor
Economics 101
Competition is great for consumers. Take cell phone carriers for example. AT&T, Verizon, TMobile, Sprint - if any one of them neglected to improve their service offering, decrease prices, or innovate their product, they’d wither into history. So when wealth managers looked around and saw that their clients were no longer reliant on their investment expertise, they had to offer more comprehensive service. And while wealth managers everywhere were competing against emerging technologies, they were also competing with one another. If you wanted to beat out the competing wealth manager across the street, you had to give the client more. And thus, the financial advisor was born.
Full-service financial advice
Today’s advisors are responsible for much more than just executing trades in the market on behalf of their clients. Want to retire in 30 years? Put a kid through college? Buy a new house? A financial advisor is equipped to help you plan for these things. While the vast majority of people know how the market works in some capacity, and have the ability to begin investing on their own, goals like the ones described above often require a heightened level of expertise. And in order to help you reach those goals, you and your advisor will walk through your current financial life and cover a plethora of topics.
Your income, savings, and debts are the first piece of the puzzle. Once your advisor fully understands these things, he or she will begin using the tools at their disposal to plan for your future. What types of accounts should you have? How should your assets be invested? Do you need insurance, estate planning, or specialized accounting? Most advisors today will provide such services, but that doesn’t mean that all advisors are cut from the same cloth.
The fiduciary duty
For the same reason that wealth managers had to improve their services at the dawn of the internet age, newfound financial advisors began selling financial products to their clients in an effort to add revenue streams to their book of business. That reason is capitalism. Pros and cons, right? Unfortunately for consumers, many advisors began putting their own financial interests ahead of their clients, offering them to buy various products and services, for which the advisor would earn a commission.
For that reason, the label “fiduciary” became more important than ever. Fiduciaries are legally held to a strict standard of duty, meaning they must put your financial best interest ahead of their own. Stash Wealth, for example, is a fiduciary, which inherently holds us to a certain level of service and prevents us from selling our clients any products that do not serve their interests.
So what’s the difference between a financial advisor and a wealth manager?
Today, not much. Generally speaking, wealth managers are associated more with assets and investments, while advisors are known for comprehensive financial advice. But for all intents and purposes…same sh*t. A Google search for wealth managers will likely render the same results as a search for financial advisors, but one recurring theme you may find when looking for wealth managers is an emphasis on “high net-worth individuals.”
The current equivalent of yesteryear’s wealth manager is more similar to a hedge fund manager than a financial advisor. Hedge funds are private investment partnerships whereby wealthy individuals or families pool funds to make large capital gains through complex investment strategies. Such white-glove, specialized services are provided only to those with a high net worth. What does any of that mean? For the sake of the average American, it doesn’t really matter. For now, the more important question is: “Why is the level of service provided to high net-worth individuals not available to me?” Great question.
“But I’m not high-net-worth”
Not yet. But that’s why we exist. Wall Street firms will tell you that you’re not worth their time because you’re not a “high net worth individual”. And that’s exactly why Stash Wealth’s CEO, Priya Malani, left the bull(sh*t) behind to found this company. Her idea at the time was simple, and it remains today: let’s treat high-earning professionals like millionaires before they are one. Because one day…they will be.
And we’re pretty damn confident in that. While most advisors want to help you plan for basic financial goals, like retirement or your first house, we understand that millennials don’t think the same way as older generations. With time on your side, you don’t have to stash all your money away for the future. That’s why we love working with HENRYs [High Earners Not Rich Yet] - because they have their whole lives ahead of them, meaning it’s more than possible for them to enjoy their hard-earned money today while still saving for retirement. That’s exactly what goals-based investing enables them to do.
Don’t let the unending list of financial titles confuse you, or the old-school mindset of institutional firms get you down. The numbers are the easy part - anyone can crunch the numbers and get you on track for retirement in 30 years - but finding an advisor who understands your unique wants, your needs, and your wishes for life today? That can be a bit more tricky.
If you’ve never worked with a financial advisor before, well, you’ve come to the right place. If you’ve gotten this far in the blog and feel inspired to break up with your current advisor, let’s chat.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Stash Wealth Staff Writer
Stash Wealth Staff Writers are knowledgeable about personal finance topics. Their objective is to unravel the complexities of finance trade jargon, products, and services in order to equip HENRYs with a sound understanding of financial matters.