Navigating your financial objectives: Is working with a wealth manager right for you? Comparing hedge funds versus managed accounts.

Each of us might have financial objectives, including paying for higher education, taking care of healthcare demands and other anticipated expenses, and, not to mention, retiring. It can be overwhelming and time-consuming to try to make investment decisions while balancing all these financial objectives on your own.

In light of this, it’s helpful to consider collaborating with a professional wealth manager. They have the expertise to work with you to develop and carry out a wealth plan that takes into account your unique objectives and situation. As financial literacy rises, it seems more and more people have started to seek guidance from finance professionals who have experience and can manage clients’ expectations.

Making an investment decision is a process, not a one-time choice. You can go to books and articles for guidance, but money is a personal matter, and there is likely no one-size-fits-all solution.

Portfolio allocation, for instance, is a straightforward concept. However, the complexity arises with age, individual risk preferences, and work retirement goals. As a result, you may need assistance at some or all points along the way.

But how exactly should you go about this process? Here are a few things to take note of before making an executive decision.

What’s a Wealth Manager?

A wealth manager is a licensed professional who helps clients requiring wealth management assistance. They are certified financial experts who often offer a wide variety of services. Investment management, financial planning, insurance sales, tax guidance, and estate planning are a few examples.

A wealth manager’s objectives are long-term wealth growth and preservation.

Here are some of the services that wealth management companies most frequently provide.

#1. Management of investments:

A wealth manager will collaborate with you to create an investment plan specific to your objectives and level of risk tolerance. In exchange for an annual fee, the manager may also choose and manage investments on your behalf if he/she is a certified investment advisor.

#2. Planning for finances:

A wealth manager can help you create a financial plan with goals for saving, investing, and spending. The manager can also assist you with retirement planning, college savings, and other significant life events. As your circumstances change, you can periodically review these plans.

#3. Tax guidance:

A wealth manager can offer guidance on how to organise your finances so that your tax liability is as small as possible. This is crucial if you run your own business or have several sources of income.

#4. Estate preparation:

You can create a plan for what will happen to your possessions when you pass away. This can entail choosing beneficiaries and establishing a will or trust.

A wealth manager is not necessary if you are confident that you can handle your money on your own. There are other possibilities if you feel like you might need a little assistance but can’t find a manager you get along with or prefer not to have someone else manage your money.

Recognise your needs

If you have just one monetary objective, such as saving for retirement, a free, straightforward tool that you can enter your data into online might provide some basic suggestions. Consider getting consultation from a specialist who can help you balance your goals while fostering financial wellness as you think about saving for conflicting objectives such as your children’s college tuition, a home, and retirement.

Setting priorities and figuring out a long-term financial strategy may require the help of an independent third party, especially if you and your spouse have certain aspirations.

Hedge Funds vs Managed Accounts

Hedge funds and managed accounts both actively manage money pools that are invested in various asset types. Technically speaking, a managed account is a sort of hedge account where the fund firm hires a qualified money manager to oversee investments in the fund’s portfolio.

Similar to hedge funds, the manager has discretion over daily investment choices, which are based on the overarching goals of the fund. While this service was previously only available to wealthy and sophisticated investors, today managed accounts are an investment vehicle that even small retail investors can get access to wealth management.

Securites Commission Malaysia definition of sophisticated investor:
– Net assets self or spouse above 3m (excluding primary residence) OR
– Gross annual income self above 300k or joint with spouse above 400k OR
– Investment portfolio self or spouse in capital market products above 1m

Benefits and Drawbacks of Managed Accounts vs Hedge Funds

High net worth investors are increasingly utilising managed accounts and hedge funds. It seems that due to the sheer range of options accessible today, investors frequently resort to private money management. Clients are liberated from onerous involvement in individual transactions in such setups.

Managed accounts provide portfolio management in keeping with the fund’s objectives, whereas hedge funds cater to the demands of a sophisticated investor. The following are some benefits and drawbacks of managed accounts versus hedge funds:

Hedge Funds Pros

  • Hedge funds can potentially generate very high returns which includes using short-selling, leverage, and derivatives which are almost never seen in managed accounts.
  • Hedge funds asset allocation can be very diverse (or even very specific) compared to managed accounts which are largely focused on equity and bond funds.

Hedge Funds Cons

  • Hedge fund managers are paid through yearly fees, often including performance bonuses, which have the potential to affect overall performance. The pay from managed accounts is smaller since they have stated fixed expense fees to determine annual costs.
  • Investors in hedge funds may not really know the assets of the fund. Transactions affecting each asset in managed accounts are openly disclosed to the investor.

Managed Account Pros

  • The initial investment in managed accounts is significantly lesser when compared to the large minimum investment required for hedge funds, which is often in the six figures.
  • Managed accounts offer customisation based on investors’ risk profile and whether a shariah-compliant investment portfolio is required.

Managed Account Cons

  • Managed accounts typically invest in more traditional asset classes likes equities and bonds, which may not generate the same level of returns as hedge funds.
  • Investors in managed accounts have little choice when it comes to capital gain payouts, whereas hedge funds can be timed to decrease the tax burden.

Conclusion

Choosing to work with a wealth manager can be a valuable investment in your financial future, particularly if you have multiple financial goals and objectives to balance. Wealth managers offer a range of services, including investment management, financial planning, tax guidance, and estate planning, that can help you develop and execute a personalized wealth plan based on your unique circumstances and objectives.

Additionally, comparing hedge funds and managed accounts can help you decide which investment option is best for you based on factors such as initial investment, liquidity, tax implications, and performance fees. Ultimately, it is important to carefully consider your needs and priorities and seek guidance from a qualified professional to make informed investment decisions.

 

Are you currently engaged with a wealth manager? Let us know in the comments down below.