Financial adviser v wealth manager: what’s the difference?
Most people know roughly what a financial adviser can offer, but many are unclear about how their services differ from those of a wealth manager, investment manager or financial planner. A quick web search reveals plenty of misleading information, particularly regarding the minimum investment required. Here we explore the differences, finishing off with a short summary of the advantages of financial advisers v wealth managers.
What can they do for you?
All advisers have a regulatory obligation to analyse your circumstances and objectives, and then provide appropriate recommendations from the options available to them.
A financial adviser (or IFA) will primarily recommend financial products suitable for the specific issues in hand, with a view to reviewing them in the future. Many are also qualified as Certified Financial PlannersTM, and will form a strategy aimed at achieving long-term goals.
This is in contrast to a wealth manager, whose primary focus is on managing your money or investments, as defined by the Financial Conduct Authority (FCA). This is a more comprehensive service and is confirmed in a contractual agreement. Like financial planners, they form a long-term strategy, taking into account all aspects of your financial situation. Wealth managers provide both comprehensive advice and transactional services.
Many wealth managers offer discretionary management, meaning they have your authority to make investment decisions without having to consult with you on every transaction. Alternatively, it will be on an advisory basis, where the manager will require your express authority before buying or selling.
How much do you need to invest with a wealth manager or financial adviser?
Many people assume that wealth managers only serve the very rich–or high net worth individuals. In truth, wealth management can be the best option for many others who see themselves as comfortable or affluent, but not ‘wealthy’. While some managers request an investable sum of at least £250,000 and up to £1 million, others might consider £100,000 or less. Smaller firms tend to be more flexible. This is particularly true say for a younger client in the earlier stages of their investment journey. When it comes to financial advisers, the initial amount required can vary from just a few thousand to £200,000 plus.
The relationship between client and adviser
Both financial advisers and wealth managers have client relationships that endure for many years. That said, a wealth manager tends to be more ‘hands on’ and will normally review their clients’ affairs on a more structured, and regular, basis.
Professional qualifications of a financial adviser v wealth manager
All regulated advisers must have a Statement of Professional Standing (SPS), which provides evidence that they meet the relevant professional standards. A financial adviser must have a minimum level 4 qualification, from a body recognised by the Financial Conduct Authority. This is equivalent to the first year of a bachelor’s degree, or a foundation degree. Anyone managing investments, including wealth managers, requires a level 6 qualification at least, which is equivalent to bachelor’s degrees with honours. However, Chartered status is the gold standard for both advisers and wealth managers.
What can be confusing is that some financial advisers advertise wealth management services, but do not hold a formal wealth management qualification which would enable them to manage investments. Whoever you decide to see, it’s important to check the credentials and qualifications of both the individual and the firm. This can be done via the FCA’s Register.
What services do they offer?
A financial adviser is likely to offer a wide range of services outside of savings and investments –perhaps mortgages, insurance products or equity release. A wealth manager tends to be more focused on investment, but will form a strategy taking account of the client’s current circumstances, goals and other factors. This includes financial, legal and tax considerations.
Who is more independent?
Whether you see a financial adviser or a wealth manager, it’s important to ask whether they are independent. That is, do they act for you or are they an appointed representative of a single company? If not independent, they will be restricted in terms of the range of products and services they can offer you. In many cases, the nature of their remuneration may lead to a focus on solely using products as a solution to your needs, rather than advice. An independent adviser must act solely in your interests and is legally obligated to consider the whole market. Many wealth managers work solely on a fee-basis, so are not commercially conflicted into giving priority to products, over advice.
Do they both offer the same kind of investments
There will be some overlap, but a qualified wealth manager is authorised to offer a wider range of investments, products that would not be available through a financial adviser. This is particularly true of firms with discretionary authority, who provide active investment management.
What about fees for wealth managers and IFAs?
Wealth managers may charge more than financial advisers, but not always. In either case, costs must be disclosed upfront. When making comparisons, it’s important to consider the value of the service received, and how this may affect your eventual returns.
What is holistic financial advice?
This popular term simply means that the wealth manager, adviser or planner looks at the broader picture. They form a strategy that takes into account all elements of your financial life, including your short and long-term goals. They also consider tax and legal matters.
Do they both consider the your attitude to risk?
Yes. According to the FCA, firms are obliged to understand their clients’ investment objectives and tolerance to risk. They can then provide recommendations in line with this.
What the difference between an investment manager and wealth manager?
The term wealth management suggests a holistic service. An investment manager may only offer discretionary investment service. This means they might not offer the same range of services or approach as a wealth manager.
What about financial planners?
Like wealth managers, financial planners do undertake a thorough assessment of a client’s circumstances and long-term goals before forming a strategy aimed at reaching these goals. They may meet with clients every six or 12 months to review and update the plan. However, unlike wealth managers they do not actively manage the client’s portfolio. Nor do they have the same level of investment expertise, generally speaking.
Advantages of financial advisers in a nutshell
1. The minimum investable sum required may be lower. It’s possible to find financial advisers who accept less than £50,000, though some require far more.
2. Financial advisers may offer a wide range of associated services such as mortgages, pensions, equity release and insurance products.
3. Many financial advisers offer financial planning as part of their service, so they can form a long-term strategy.
4. It’s possible to buy financial products on more of an ad hoc basis.
Advantages of wealth managers in a nutshell
1. A higher level of professional qualification is required, and comes hand in hand with greater expertise. They should be well equipped to handle more complex financial and tax planning, and offer a greater range of investment options.
2. They provide a holistic approach. This means they consider short and long-term goals and take into account tax, legal and financial considerations.
3. Discretionary management means you can sit back and know that your investments are being managed on a day-to-day basis. As you have delegated authority, the wealth manager can react swiftly to new risks and opportunities.
4. Wealth managers may handle a smaller number of clients, and can offer a more flexible, or even bespoke, service.
At AJB Wealth, we specialise in offering true wealth management, including both advisory and discretionary investment services. We are also independent so have access to the whole market when making investments.
Our MD, Paul Willans, is a Chartered Fellow (Financial Planning) of the Chartered Institute for Securities and Investment (FCSI), a Chartered Wealth Manager (MCSI) and a Certified Financial Planner (CFPTM), amongst other qualifications.
Our experienced and highly-qualified team is well placed to work with you, and your other professional advisers, to help you achieve financial efficiency and security. To arrange an initial consultation, please book a meeting, or call us on 01483 774 070.
Important: The content of this bulletin is for general consideration only, and does not constitute advice. No action must be taken, or refrained from being taken, without advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise, and, in the event of early encashment, you may receive less back than your original investment.
