7 Ways Traditional Financial Advisors Fail High Net Worth Clients

In fact, they aren’t even aware that their own projection methods are flawed at their very core. We’ll discuss the specifics of that in a bit.

In our free guide, 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning you can get a complete understanding of why investors with high net worth are putting their wealth at risk and selling themselves short by entrusting their wealth to Wall Street firms, Discount Brokers and Mutual Fund companies and traditional advisors.

In a moment, we’re going to reveal a few elements of what you’ll find in the guide. We’re doing this because, as just stated, these times demand a new level of attention, awareness, and alertness from smart investors, and from people who want someone with advanced expertise they can trust to manage their investments and deliver lifelong financial serenity.

That’s what Pillar Wealth Management achieves for investors who have between $5 million and $500 million in liquid net worth.

If that’s you, and if you’re feeling great uncertainty about the future and want to see what advanced wealth management expertise can do for you without taking any risks, schedule a free call with one of our founders. Both of our founding partners have been exclusively managing high net worth portfolios for over 30 years.

Keep reading to see 7 ways most advisors are failing, or are about to fail, their high net worth clients.

Table of Contents
1. Traditional Advisors Peddle Services They Don’t Understand 2. Your Advisor Has No Sense of Urgency 3. Your Advisor Is Serving Other Masters 4. Traditional Advisors Convince You a Lower Fee Saves You Money 5. Most Advisors Don’t Check Your Spending or Investment Decisions 6. Your Advisor Believes Diversification Is a Suitable Hedge Against Risk 7. Your Advisor Fails to Plan for Big Expenses

Let’s get to the details. Here are 7 reasons why traditional financial advisors don’t possess the expertise or understanding it takes to fully protect your wealth.

1. Traditional Advisors Peddle Services They Don’t Understand

No one knows how the future will affect investment performance. But we do have the past as a guide – but only if we use it to its fullest potential. And while past performance is of course no guarantee of future performance, you can build models based upon how the market has performed in various situations.

Many financial advisors as well as big discount brokerage firms do some version of this. The problem is, many of those systems are flawed at their very core, and the advisors pitching them to high net worth clients don’t seem to even be aware of it.

One example of this is what’s known as Monte Carlo. This is an investment model that attempts to use historical market performance to build projections for your portfolio. But here’s the problem: Monte Carlo removes all the worst events in market history, such as the Great Depression.

That’s borderline fraud!

Think about it. By not including the periods in history when the market was imploding, the Monte Carlo model is presenting a rosy picture of how your investments would have performed in the past, and an even rosier one for how they will perform in the future.

Pillar uses a much more trustworthy model that we created ourselves, specifically for high net worth investor portfolios. And since we built it, we understand it! We know why it works, why other approaches fall short, and how to craft a financial planning and investment strategy that will deliver the worry-free financial serenity you expect. Learn more about our proprietary and customized process – schedule a free consultation.

2. Your Advisor Has No Sense of Urgency

The time to secure your wealth is now. This is not the time for business as usual. You can’t wait until the next crisis hits and then decide how to respond. Your financial advisor must be proactive in planning ahead for volatility and implosions.

The covid recession gave many investors a false sense of security. We’ve heard it from some prospective clients, who feel little concern about losing 35% of their portfolio’s value in less than a month, because “it all came back within a few months.”

More foolish words have rarely been spoken. That quick rebound is not normal, and you cannot count on it happening ever again.

When you compound that misconception with the current political and social environment, when a lot of things seem to be teetering on the edge, big tax policy changes are being discussed, and the business environment and social structures are fraying – you need an advisor who understands that now is the time build wealth protection into your short and long term planning.

Too many advisors just keep following the same formulas, passing out the same guides, and trusting the same Wall Street investment practices.

This approach will not serve or protect you when the heat arrives.

3. Your Advisor Is Serving Other Masters

Many financial advisors and wealth managers have additional priorities besides your best interests in mind. Yes, even some of the fiduciaries.

They may have to hit certain profit or sales targets. They might be using the strategies and practices of their superiors, not really thinking for themselves, trying to look good for the next promotion. They might have quotas to meet, driven by that as much as by your needs.

In addition to serving you, many advisors serve these and other masters. But protecting your wealth needs to command 100% of the focus and attention of your personal wealth advisor. Anything less, and you will likely come up short.

4. Traditional Advisors Convince You a Lower Fee Saves You Money

It’s an easy pitch. “The other advisor is offering 1%. We can offer 0.75%.” Then another discount brokerage firm chimes in offering even less. Clearly, you should take the lowest fee, right?

Well, not necessarily. Why? Because the upfront fee is never the only cost of investment, no matter which advisor is freeing you to focus on other life activities and pursuits by taking the management of your wealth off your plate.

Almost every mutual fund charges a fee. Selling off stocks and funds triggers taxes. But when you sell, and how long you hold, affects the amount of those taxes (and it’s a BIG difference). There are all sorts of additional costs besides the main fee every advisor quotes to would-be clients. We present eight of these in great depth in our ultimate guide, 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning. You are strongly advised to claim your free copy before going any further.

Beyond all these costs is the most important one of all – your investment performance. If one advisor appears to earn you a higher rate of return for a lower fee, but incurs higher taxes and doesn’t avoid some of the other avoidable costs of investment, you may not actually see all that higher performance.

Conversely, if they lose your money in the next crash, but the advisor who charged 0.1% more would have protected millions more of it, how are you going to feel about that 0.1%?

Of course, high fees don’t promise better performance either. The manager of the second largest pension fund in the nation even declared that active managers very rarely made enough money to justify their higher fees.

For all these reasons, you can see why there’s more to the story than the initial fee. Don’t be swayed by just one number. What matters much more is, what kind of performance, security, certainty, and personalized, customized service does your advisor provide? See what Pillar’s white glove service delivers for those with $5 million to $500 million in liquid assets – schedule a free call today.

5. Most Advisors Don’t Check Your Spending or Investment Decisions

Wait a minute. Are we saying that even though it’s your money, your advisor should have a say in how you spend it and invest it?

Well, if you want the maximum level of performance balanced with lifelong worry-free financial security, then – yes!

Managing ultra high net worth isn’t simple. That’s why history is replete with headlines about bankrupt celebrities and athletes. Johnny Depp is one of the more recent examples. The guy made hundreds of millions of dollars, but failed to manage it wisely and is now in hot water. He didn’t have anyone in his life who had the freedom to question his spending decisions.

This isn’t about giving away your autonomy. It looks more like this:

You want to buy a boat, or purchase a second investment property, or start a new business or foundation. Should you do it? You call up your financial advisor and ask how this purchase will affect your long-term financial picture.

How your advisor answers that question is THE reason to have a non-traditional advisor. With a Pillar wealth manager who has created a fully customized portfolio, investment strategy, and financial plan, and who uses a projection model that doesn’t erase the worst parts of history, you can be told exactly how that purchase will alter your portfolio’s long-term health.

Pillar’s system can tell you exactly what a large purchase will do for you. Will you still be in what we call the Comfort Zone, or will this purchase take you outside of it?

That’s what customized financial advice for those with ultra-high net worth is supposed to look like. Not, “Well, sure, if you want to get that property, it seems to me you can afford it, so go for it!”

It’s not about if you can “afford” something. Of course you can, right now. It’s about, how does that purchase alter the health of your portfolio, 30 years later. We can tell you. Most advisors can only guess, at best. Learn more about the Comfort Zone in a personalized consultation.

6. Your Advisor Believes Diversification Is a Suitable Hedge Against Risk

The key word here is ‘suitable.’ As part of a more comprehensive plan, diversification can play a role in reducing risk. But too many traditional financial advisors think that as long as you’ve got your investments spread around a variety of stocks, funds, and bonds, you’re protected enough.

When catastrophic market crashes hit, diversification doesn’t protect you, because almost everything goes down. Some go down more than others, but if you have $30 million, and you lose half of that in a single crash, you’re now down to $15 million. We’ve seen it happen to numerous clients of other firms who come to us with demolished portfolios.

Having to listen to a smug advisor explain that “you would have lost more if you weren’t diversified” doesn’t do much to ease the pain. Surely, there is a better way to protect your wealth than this.

Plus, there is the added element of disagreement about what it means to be ‘diversified.’

Some consider a portfolio with 70% stocks and 30% bonds to be moderate and diversified. But is it? What about 60/40? Can portfolios really even be simplified down to this sort of breakdown, if you’ve built one that’s customized to each individual?

We’ve run analyses on these sorts of raw percentages, and in big crashes, they still lose 30%, 40%, and sometimes 50%! Yet these are the ratios being pushed by just about ALL the major investment firms!

Diversification isn’t enough if you want lifelong, worry-free financial security and wealth protection.

 

7. Your Advisor Fails to Plan for Big Expenses

There are some big expenses in your future. Some of them you already know about. But some of them are unknown. Unexpected events will come your way that will require you to spend big.

Traditional financial advisors don’t build financial plans that include the anticipation of large future expenses – including unknown ones. They focus mostly on investment returns.

Can your advisor compute the effect on your portfolio’s long-term health of expenses you don’t even know about yet?

We can. Our approach is proprietary and innovative. We build 100% customized financial and investment plans that are designed to deliver the near certainty of long-term peace of mind without having to do any of the work yourself, based in part on historical data – including the bad times.

You can’t build a customized plan that means anything if it doesn’t incorporate future expenses, known and unknown. Otherwise, when those expenses arrive, often unexpectedly, your plan won’t be up to the task of protecting your wealth.

That is a reactive approach to investment planning. But a proactive approach is what serves ultra-high net worth investors best. Click below to speak with one of our two founding wealth managers, both of whom have spent over 30 years managing portfolios for high and ultra-high net worth investors.

Speak to a Wealth Manager

 

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