What Do Wealth Management Firms Do?

Updated April 27, 2021 | Staff Writers

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What Do Wealth Management Firms Do?

Wealth management firms play an integral role today in many of the financial transactions that take place in the US economy as well as across the world. For someone who is interested in learning more about wealth management firms, this article will discuss the key facets of what they do.

1. The Goal: Increase Client Wealth

In an effort to keep things simple, it is important that you know that the goal of every wealth management firm is to increase the wealth of its clients. Different firms attempt to do this via a myriad of means, but the goal of the wealth management firm is inextricably linked to the goals of its clients. When the client succeeds monetarily, the wealth management firm succeeds as well.

2. Is the Firm Aimed Towards Retail or Institutional Investors?

Certain firms only works with retail investors. Generally speaking, a retail investor is an individual who is investing $5 million dollars or less. A good example of a wealth management firm that deals with these kind of people regularly would be a small wealth management group like Abiding Wealth Advisors in Charlotte, NC.

The second kind of firm only deals with institutional investors. An institutional investor is an individual or company that is going to be investing over $5 million dollars. A good example of a firm that is oriented towards serving institutional investors would be a business like BNY Mellon Bank.

Of course, there is some crossover between which firms service which kind of clients, but a wealth management firm will typically focus on one segment of the market (i.e. retail or institutional investors).

3. Is the Firm Focused on Advising or Investing?

Now, a wealth management firm usually takes one of two approaches to managing their clients’ monies.

The first approach is what we might call a “passive investing” or “financial advisor” approach. Firms that focus on this kind of methodology will usually try to mitigate their clients risk by diversifying their money in a wide range of asset classes and then will attempt to educate and empower their clients to make important financial decisions on their own. Usually, these firms will charge somewhere around 1%/year for this financial advice.

The second kind of firm takes what we call an “active management” approach. These groups promise that they can actively buy and sell investments on their clients’ behalf in order to maximize returns. They believe that they can time the market and flip assets at just the right times in order to beat the market returns. Usually, this kind of firm charges a higher fee for its services and to cover the frequent transaction costs that they have to pay.

4. The Information of the Trade

Of course, any wealth management firm understands that each investor’s situation is going to be different, so they will attempt to understand their client’s time horizon and risk adversity before making transactions on their client’s behalf.

Time horizon is simply the amount of time that a person can wait before they will need the money that is bottled up in their investments. Having a shorter time horizon will limit the types of investments that one can make. Risk adversity is the measure of how much risk a client is willing to take. As someone becomes more risk adverse, the types of investments that they are willing to invest in diminishes in number.

5. The Goal(s) of the Client

So, what should be the goal of any person attempting to hire a wealth management firm? Simply put, the investor’s goals should be twofold:

1) Attempt to find the firm that produces the highest annual returns.

2) Simultaneously seek to find the firm that charges the lowest annual expense ratio since expenses eat directly at returns.

If an investor can find such a firm, it is likely that a long-term symbiotic relationship will be formed between the firm and the investor.


Wealth management businesses are populating rapidly in the modern world. According to Forbes, it is important that every investor build a team of wealth managers that he or she can tap into. To learn more about wealth management firms and financial advising, please see the following article from US News.

Related Resource: The 25 Best Graduate Certificates in Financial Management Online Programs

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