Choosing a private wealth manager versus a financial advisor (2024)

In an era of do-it-yourself personal finance and investing, not everyone has the time — or inclination — to go the DIY route. If you decide to turn the financial reins over to a pro, you may have to distinguish between choosing a wealth manager versus a financial advisor. While the differences are pretty straightforward, establishing the criteria to differentiate between the two can be daunting to the uninitiated.

Ultimately, the firms you approach will direct you to the proper divisions within their organizations — to either a wealth manager or financial advisor — based on your financial situation, how much cash you have and what you need or want to do with it.

So, it’s best to have your situation and goals clearly outlined, along with an understanding of who’s who among money managers, before making the call.

What is a private wealth manager?

A private wealth manager works with high-net-worth individuals, generally defined as those with at least a million dollars in investable assets. While they often provide investment advice, they tend to also focus on broader areas of wealth management, including tax efficiency, estate planning and charitable giving for people with large sums of money.

While wealth managers sometimes work for private companies, they often reside in the wealth management departments of large retail and investment banks. Typically, clients who have existing relationships — and large sums of money on deposit — with a firm have access to wealth management divisions.

At the highest levels of wealth management, wealth managers provide specialized services, such as cybersecurity, aircraft management and art and collectibles planning to ultra-high-net-worth individuals, whose liquid assets exceed $30 million.

Challenges facing the wealth management industry

According to management consulting firm McKinsey & Company, the wealth management industry is under pressure. McKinsey’s research shows that, after a decade’s worth of steady growth, US wealth managers saw client assets fall by $6.2 trillion in 2022. The firm attributes this to market performance and a significant decline in new client money coming in.

In 2021, wealth managers saw net inflows of $2.6 trillion, representing organic growth of 6.2%. These numbers declined to $1.4 trillion and 2.8%, respectively, in 2022. While growth remained positive in 2023, it’s still sluggish. In its own research, consulting firm EY, formerly Ernst & Young, agrees with McKinsey on the challenges the wealth management industry faces and the ways it needs to react.

Two of the main issues facing wealth managers: The emergence of technology-driven approaches to financial management at online and fintech (financial technology) companies and an increasing desire among clients for a one-stop shop for all of their money-related needs adjacent to wealth management.

McKinsey points out that, in 2018, just 29% of the wealth clients they surveyed “said they prefer holistic advice across adjacent needs.” That number jumped to 47% in 2023. Among clients with assets of between $1 million and $25 million, roughly 30% would rather consolidate their “banking and wealth relationships,” an increase of about 250% since 2018. Upwards of 73% of younger clients ages 25 to 44 want this type of consolidation. Not only are tech-savvy fintechs fighting for this business, but, as EY notes, “Universal banks, wire houses, custody banks, health insurers and other global financial institutions … are doubling down on their efforts to extend their footprint among both affluent and high net worth clients.”

What is a financial advisor?

A financial advisor generally works with a wider assortment of clients. While some deal with broad wealth management areas, they often focus on specific investment-related advice and strategies. Firms usually have minimums required to work with a financial advisor. However, they’re less stringent than wealth management minimums.

The relationship you have with your financial advisor can be as simple as an annual portfolio review or occasional conversations around buying and selling stocks and other investments. It can go deeper, dealing with ongoing concerns such as taxes, insurance and retirement.

According to researcher Statista, the US financial advisory industry as a whole, including traditional wealth management but not automated robo-advisory services, is expected to grow at an annual rate of 8% between 2024 and 2028. Across the money management spectrum, there’s increased demand, with assets under management (AUM) projected to hit $62.6 trillion in 2024 and $85.1 trillion by 2028.

The US Bureau of Labor Statistics expects the employment of financial advisors to grow by 13% between 2022 and 2032, outpacing the average rate of all occupations. Some of this growth will come via turnover due to retirements and individuals transitioning to different lines of work.

Key differences between a private wealth manager and a financial advisor

As we have established, the main difference between a private wealth manager and a financial advisor comes down to the type of clientele they work with. If you have a high net worth, you’re more likely to go with a wealth manager. Otherwise, you’ll probably employ a financial advisor.

Fortunately, deciding which type of financial professional to choose isn’t the hard part. Your assets and the structure of the industry essentially make this decision for you. If you approach a bank or other financial company and explain your situation, they’ll let you know the services — and level of service — you qualify for.

Things get more complicated around professional designations and regulations.

As Gerri Walsh, president of the FINRA Investor Education Foundation and senior vice president of investor education at FINRA, explained, “FINRA is a not-for-profit organization authorized under the federal securities laws and registered with the Securities and Exchange Commission (SEC). Alongside the SEC, FINRA oversees US member broker-dealers and their personnel, including individuals who recommend or sell securities products to the public. FINRA’s mission is protecting investors and ensuring the integrity of our country’s securities markets. Membership in FINRA requires a significant commitment, including compliance with numerous safeguards designed to protect investors and the integrity of the securities markets.”

Breaking it down further, via FINRA’s website, “The SEC regulates investment advisers who manage $110 million or more in client assets, while state securities regulators have jurisdiction over advisers who manage up to $100 million. Advisers with less than $100 million in assets under management (AUM) must register with the state regulator for the state where the adviser has its principal place of business.

“When a state-registered adviser’s AUM reach the $100 million threshold, the adviser might opt to register with the SEC — but when the adviser’s AUM exceed $110 million, they generally must register with the SEC. It’s important to find out exactly which services a professional who wears multiple hats will provide for you and what they’ll charge for their services.”

To this end, a wealth manager at a big bank might fall under the legal and/or regulatory scrutiny of multiple organizations, including FINRA, the SEC, the Federal Deposit Insurance Corp. (FDIC) and an assortment of other federal and state agencies.

To take the confusion out of this bureaucratic melange, consult FINRA’s BrokerCheck and the SEC’s Investment Adviser Search to check the background and qualifications of the person or firm you think you might trust with managing your money.

Private wealth manager and financial advisor fees

Private wealth managers and financial advisors get paid a flat fee or a percent of the assets they manage.

Generally, you pay lower percentage-based fees and require smaller minimum balances with a financial advisor than with a wealth manager. The percentage you pay decreases as assets under management, or AUM, increase.

Flat fees increase as your AUM increases.

While fees and minimums vary by firm and wealth manager or advisor, our survey of the landscape generated the following typical structures, moving from broad to specific.

According to a 2021 AdvisoryHQ study, the typical AUM fee is just over 1%. For example, if you keep $100,000 with a financial advisor, expect to pay closer to 1.12%, whereas a balance of $1 million might carry a 1.02% fee. As you get above $1 million AUM, expect to see fees drop to less than 1%.

Flat fees generally range between $7,500 annually (for up to $500,000 AUM) to $55,000 (for more than $7.5 million AUM).

Minimums range from zero to a few hundred dollars (mainly with robo-advisors) and can climb to as high as seven figures with wealth managers.

Individual firms tend not to loudly broadcast their fee structures, so you have to do some digging, which we did.

A sampling of the specifics shows that Morgan Stanley gives its financial advisors the general leeway to charge between $250 and $5,000 per client. However, advisors with advanced credentials or designated wealth managers can bill clients up to $10,000 on assets of more than $5 million.

At Merrill Lynch, fees to work with a financial advisor or wealth manager top out at 1.75% of AUM, while the firm’s lower level “financial solutions” division charges no more than 1.10%.

At Fidelity, you’ll need at least $10 million in investable assets (with $2 million committed to a Fidelity program). Fees range between 0.20% and 1.04%.

Here again, when you solicit a firm and detail your financial picture, they’ll funnel you to the appropriate financial advisory or wealth management program. They might even suggest you take advantage of the latest, not-quite-DIY technology.

From basic financial advisory services to larger scale wealth management, you can opt for a robo-advisor. Robo-advisor fees tend to be lower than what financial advisors and wealth managers charge. However, with a robo-advisor, you’re usually dealing with an algorithm rather than a live person.

Robo-advisors aren't limited to financial advisors. According to a report from Deloitte, robo-advisory is becoming more common in the field of wealth management. High-net-worth individuals might opt for a robo-advisor because the technology can help them make — or even automate — sound decisions quickly for fees lower than what traditional banks and brokers charge.

Do you need a financial advisor or a wealth manager?

As explained, the decision often gets made for you on the basis of your financial situation.

A good rule of thumb is to start with a financial advisor, then consider upgrading to a wealth manager for their broader knowledge base and more specialized services. According to Northwestern Mutual, once you have amassed at least $250,000 worth of investable assets, you might consider a wealth manager.

Because you’ll likely pay higher fees to a wealth manager, ensure you require the broader scope of services they provide. If you’re just looking to put together and maintain a retirement portfolio, a financial advisor might be all you need.

Choosing a financial professional for your needs

Some people sitting on seven figures’ worth of wealth are more than comfortable managing their own money. Others with much less sleep better at night knowing that an expert has their back. Sometimes your needs have less to do with how much money you have and more with how you feel about making decisions around seemingly endless investment choices and subsequent near- and long-term planning.

Once you decide who you are with money, you can move forward with finding the right financial advisor or wealth manager to assist you on your journey.

Broadly speaking, Walsh encouraged investors to do their own due diligence on financial professionals. As guidance, the FINRA executive suggested asking the following questions:

• What experience do you have working with people like me?
• Who are you registered with and in what capacity? Do you hold any other professional credentials?
• Do you have any disciplinary actions, arbitration awards or customer complaints? If so, please explain them. (Also compare their responses to information found in BrokerCheck and other third-party sources.)
• Do you or your firm have an overarching investment philosophy?
• What type of investment products and services do you offer? Are there any products or services you don’t offer? Why?
• Do you or your firm impose any minimum account balances on customers? If so, what happens if my portfolio falls below the minimum?
• How do you get paid? Do you receive commissions on products I buy or sell? A percentage of the amount of my assets you manage? A flat or an hourly fee? Any other method?
• Do your fees go up if the value of my investments increases or if I add more money to my account?
• How will your recommendations align with my goals?
• How often is your firm examined by a regulator? When was the last examination?

As discussed, your situation might dictate the classification of financial pro you work with. However, no matter the level you’re at, it’s important to consider not only the distinctions between a wealth manager and a financial advisor but also the universal points on selecting the financial professional best equipped to get you where you want to go.

Frequently asked questions (FAQs)