Wealth management is more than just financial

Wealth management is a tag line used by many financial advisors to describe their services. It’s a familiar term but what does it actually mean and, more importantly, what should it mean?

Wikipedia says “at the most general level, economists may define wealth as anything of value which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept”.

If one adopts the “anything of value” concept, one’s balance sheet as a measure of wealth should include more than just financial assets like investments, real estate and businesses. One’s intellectual assets like education, experience, skills, interests, passions and reputations are valuable and therefore should be part of the total wealth equation. Similarly, personal assets like values, relationships, community/civic involvement and physical, mental and spiritual health should also be captured.  Balancing these asset categories can be tricky as adding in one category can drain the assets of another (e.g., career vs. family, etc).

One’s value system is relatively constant, so effective management should begin with one’s values. Julie A. Morton, a Ph.D. in communications and consultant to high net worth families wanting to maximize their potential and create lasting legacies, says “values-based decision making has been empirically proven to be the most effective and to have the highest satisfaction of any form of decision making.”

Understanding the entire wealth equation provides a better opportunity to achieve multiple objectives. For example, selling a business is the monetization of years of wealth building. Establishing a private foundation with a portion of the proceeds can achieve philanthropic objectives (personal) and shelters capital gains from tax (financial).

Another example is Newport Private Wealth’s Preview Trust which is a plan to help adult children learn about investing (intellectual) using a prescribed rate loan that also reduces the family tax bill (financial).

NextWave is Newport Private Wealth’s latest initiative for young adult children of our clients to become better at managing their finances and network among peers (personal and intellectual).

So what is effective wealth management? It’s multi-dimensional and builds total wealth – personal, intellectual and financial assets. Often, the financial industry focuses solely on the financial without considering other aspects of total wealth. Effective wealth management is more than just financial. It considers the total wealth equation.