The next time you drive down the highway, look around at all the other vehicles around you. You will see many Hondas, Toyotas, and Hyundais. You will also see many Mercedes, BMWs, and Porsches. That is because there are a wide variety of consumer tastes, needs and desires in the car-ownership market. Different drivers value different attributes in a car, and every car owner feels that different things are important to their driving experience. Some consumers just need a reliable way to get to and from work, shopping, soccer practice, and family vacations. Their car does not have to be fancy or cost a lot; it just needs to get the job done.
Other car buyers desire and will spend extra money on fancy amenities, body style, audio systems, and extra safety features. They may value the prestige that owning a fancy car will display to the world. And they want to know that in the unlikely event that their car breaks down at the side of the road that they have a number they can call so that white-glove service will come and quickly rescue them. Neither kind of car purchase is wrong. Different people need and value different things. There is room on the road for both types of vehicles and drivers.
Managing your investments and wealth is a similar product-purchase decision. When an investor is young and just beginning her career or in the early years of her investment and long-term wealth growth journey, the focus for that investor is usually on low cost, convenience, access to investment products that allow for a one-product exposure to the complete stock or bond market, and confidence in the stability and good standing of the company offering these products.
The focus for a young person should be on starting to invest at as early age as possible, consistently adding new contributions to those investments and allowing those investments to grow over time without trading in and out of investment products based on gut feelings or negative news stories.
At this stage of an investor’s life, a low-cost, no-frills stock or bond index fund or exchange traded fund (ETF) may be a perfect investment choice for the growth of that client’s wealth over many decades to come. The customer does not have ready access to investment advice or a knowledgeable person to talk to, or to seek counsel from prior to making any changes that may negatively impact her wealth down the road. But the products are usually a very low-cost and convenient option, so can be a smart choice for this phase of an investor’s life. These Hondas or Toyotas of the investment product world are a valid choice.
However, an investor that is well down the road in her career, one who has come into a considerable amount of money from growth of a private business or inheritance, or that is nearing retirement, may value the additional help and guidance that a wealth management professional can bring to the table. Investors in this group may value a person or team who is dedicated to his or her family and the health and growth of his or her investments.
The investor may value the truly personal relationship that can develop between a wealth advisor and a client and may appreciate the guidance and advice that a wealth manager can provide during times in the financial markets and economy that are not so rosy.
The client may have the need for estate planning to ensure the continuity of the family’s wealth after her passing. She may have a need for the creation of complicated trust accounts and for the administration of those trusts. And she may need the advisor to meet with and educate the next generation of the family to help pass on the wisdom and financial knowledge to her heirs.
These are all very important tasks that a wealth manager handles every day and involves expertise that a low-cost index fund company does not offer. An older client with more wealth needs this advice and extra level of service and guidance.
Hiring an experienced wealth manager does cost money, but the service can be well worth the cost. We would not dream of extracting our own appendix; we know that we need to pay an experienced surgeon to perform that task. We pay lawyers to draw up contracts, plumbers to fix leaks in our foundation, and auto mechanics to fix our car engines. These trades all involve highly specific skills, learned and perfected over many years of training, and they all involve critical operations that need to be completed to the highest level of competence. Such is the case with hiring a wealth management professional.
A professional provides a level of expertise and guidance in many different areas of long-term wealth management, and the resulting peace of mind can be well worth the cost.
