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Qualified Families With $5 Million to $500 Million
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What Is a Financial Advisor To The Affluent and What Do They Do Different?
Your All-in-One, Last and Only Stop for Everything You Need to Know about Financial Advisors
You have money, and you want it to last through retirement and beyond. What brought you here is a common question asked by individuals and families across the world: Do I need help from a personal financial advisor?
If you’re hoping to get a clear understanding of what a financial advisor is without having to hop around the internet and open ten different tabs, this is the only page you need to look at.
What you’re about to read results from our 30+ years of experience as financial planners and our perspective as a private wealth management firm which specializes in helping families with $5 million to $500 million in liquid investable assets. If you have liquid assets exceeding $10 million and want help now with choosing the right financial advisor for you, get this Ultimate Guide.
The remainder of this page will take you through what financial advisors do, how to decide if you need one, and how to choose the advisor that is best for you.
You’ll find additional finance related resources for more in-depth exploration as you go. Read it all, or use the quick links below to skip to the parts most pertinent to you.
Table of Contents
Table of Contents
What Is a Financial Advisor?
What do financial advisors do? A ‘financial advisor’ is a professional who offers guidance for your decisions about investments, retirement planning, financial planning, and tax planning. Whatever goals and desires you have for your life, money, and future, your financial planner’s advice and services are designed to help you achieve them.
Financial advisors can be found at large banks and publicly traded companies, independent firms, partnerships, and as solo practitioners.
For investors with over $25 million in assets you might wish to request a free copy of our hardcover book The Art Of Protecting Ultra-High Net Worth Portfolios And Estates, Strategies For Families worth $25 Million to $500 Million.
Financial professionals should have expertise in all things related to finance, the stock market, bonds, economic volatility, investing, budgeting, retirement, taxes, debt, and planning. The better financial advisors also bring knowledge about estate planning and inheritance, life insurance, business exits, and real estate investing.
And the very best advisors – in addition to all this expertise – have developed their own strategies for customizing portfolio planning around each client’s specific goals and needs. Our firm’s advisors reside in this class.
Examples of Financial Advisors
Some financial advisors are mostly just transactional. These advisors shift money around between mutual funds and savings accounts, and plug money into various stocks, bonds, money markets, and other investment options. Other advisors may invest your money in commodities or more specialized investments. Now and then, they’ll give you progress reports. Other advisors sell products on commission, like life insurance or annuities.
Use this free guide to discover a new way to optimize the performance of your investments without taking on undue risk:Improving Portfolio Performance, The Shifts multi-Millionaires Must Make To Achieve Financial Security And Serenity.
Transactional financial advisors are not truly advisors, in the full meaning of the word. They are not what we might call consultative financial advisors. Transactions are not the primary reason you seek financial advice and services.
You seek help from a personal financial advisor because you want to effectively use your income, expenses, debt, assets, insurance, businesses, and property to achieve your short and long term lifestyle and financial goals.
For example, a wealth manager is a particular type of investment specialist who only works with high net worth or ultra-high net worth individuals. Such clients have unique financial needs that require a different set of planning skills and services.
A robo advisor, on the other hand, is ideal for a young person just starting out who has little savings or investments, but wants to manage their financial affairs wisely, plan for their future, pay off student loans, and not fly by the seat of their pants with their investing decisions. Robo advisors become less useful with age as your assets accumulate, retirement gets closer, and the increasing complexity of your finances require more comprehensive financial services.
No matter what type of financial consultant you work with, the motivation for getting one is the generally the same: Managing your financial affairs and investments is a lot easier if you’re getting financial advice from a trusted expert. It’s hard to do this alone.
Understanding Financial Advisors and Their Methods
Let’s explain further how a consultative financial advisor works. They should begin by asking a lot of questions. Their goal is to understand you. What do you care about? What worries you? What do you hope for out of life? Whatever your answers, your money and investment strategies will play an essential role.
For more in-depth guidance, get The Ultimate Guide To Choosing The Best Financial Advisor, For Investors With $5 Million To $500 Million In Liquid Assets.
For instance, if you care about your kids or grandkids having the best possible education, your money will play a role. If you worry about your parents having costly medical complications and want to be prepared, your money will play a role. If you hope to start a charitable foundation that funds research into a particular disease, your money will make that happen.
If you have no retirement plan, or lack certainty in what you do have, a professional advisor will know where to begin. If you plan to sell a business or businesses, getting financial advice that is in your best interest will lead to better results.
Wealth advisors begin with a consultation, because they want to know what matters to you before creating any plans for your investment portfolio. Then they can customize your financial plan around the life goals and needs you cherish most.
Every consultant advisor may have a slightly different strategy for this. See our firm’s approach to consultative financial planning services.
The Fiduciary Question
Here is one place where differences between financial advisors become very, very important. The concept of ‘fiduciary’ dates back to ancient Rome, which defined the term as follows:
“A person holding the character of a trustee, or a character analogous of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires.”
The key term is ‘good faith.’ The idea is that the advisor is bound by oath to act on behalf of their client in the same way they would act for themselves. A fiduciary financial advisor therefore pledges that all their decisions, financial advice, services, and recommendations are truly and completely in the best interests of the client, to whatever extent is possible. There is no conflict of interest.
Financial advisors who are not fiduciaries and therefore not Registered Investment Advisors (RIA) follow what is known as the ‘suitability’ standard. In other words, is their financial advice and the investment plan they create for you suitable or reasonable?
This is a much broader standard for financial planning services, and allows the advisor to recommend almost anything as an investment option, including products than earn them a commission. Your best interests are no longer in play.
For instance, annuities are suitable for almost anyone. But they are rarely in a person’s best interest. There are several other unfavorable recommendations a non-fiduciary might advise that could cost you millions.
So then, how would a fiduciary handle questions about annuities? They would explain the pros and cons of the annuity, identify the insurance company behind it, clearly spell out how it could help or hinder your investing goals, and then offer advice that you could accept or ignore.
A financial advisor does not force a client to make financial decisions. They advise them. A fiduciary’s investment advice will always be in the best interests of the client.
Here’s a story of a client our wealth management firm turned away, because accepting them would have put us at risk of not being able to fulfill our fiduciary duty.
The question of whether to insist on working with a fiduciary financial advisor is, in our view as Registered Investment Advisors, not even a question. It is far more important than their assets under management (AUM), numbers the big banks and financial services firms like to brag about, but that have little to with the quality of their service.
One result of the 2008 recession was to mandate all financial advisors to act as fiduciaries. The abuse of clients was so rampant and played enough of a role in causing that recession, that this extra layer of accountability was considered part of the solution to preventing another financial meltdown. Those regulations have since been relaxed, so once again the choice is yours on which type of advisor you want to work with.
Here’s a cautionary tale showing 7 ways a non-fiduciary advisor can permanently derail the investment performance of your portfolio.
Financial Advisors and Investments – 4 Strategy Differences
How do financial advisors decide what to recommend for your investment portfolio? And how do you find and choose the top financial advisor whose services you want to use?
This is where you find quite a disparity among different investment advisors. Here are a few areas where advisors can differ in their investment strategies:
- Active vs Strategic Investment
An “active” financial planning and investment philosophy believes that investment experts have the ability to consistently outperform the market. This strategy looks for the highest returns, the best performing funds, and the hidden gems in the stock market that they believe are poised to make big money for your investment accounts.
A better investing plan – get this free guide: Improving Portfolio Performance, The Shifts multi-Millionaires Must Make To Achieve Financial Security And Serenity
Conversely, the “strategic” investment philosophy has seen enough data to know that over 90% of active managers fail to outperform the market over a five year period, and that the numbers get worse the longer you go. For anyone wanting investment planning that spans decades – an overly active strategy will almost certainly lead to underperformance and diminished assets.
Why? Because people simply aren’t wired to make smart investment decisions, and wealth advisors are no different. Emotions inevitably interfere, especially when you least want them to, such as a market crash during retirement, right after you sell a business, or a large inheritance.
Many investors presume the professional money managers and financial advisors should be better at picking winners and losers, but the data suggests that the vast majority are not. We have found that most professionals are decent at knowing when to buy an investment, but terrible at knowing when to sell.
If this is true, why do so many financial advisors use the active investment management philosophy? Because they all believe they belong to that small, elite percentage who will beat the market – using your money. They aren’t. It’s little more than baseless overconfidence.
- Frequent Activity vs Less Activity
Another difference between the services of financial advisors relates to levels of activity.
Some advisors like to make frequent shifts with their clients’ money. Trying to jump on investments and funds that are doing well, and getting out of ones performing badly. Buying commodities that are poised to soar. Shedding poorly performing stocks.
Other advisors recommend minimal activity, favoring targeted and consistent rebalancing over jumping in and out of equities and funds all the time. Our firm prefers this method in part because the money our clients entrust us with avoids a needless tax bite. Frequent trading triggers more and higher taxes in the form of short term capital gains. Just another hill your investments have to climb over, and our financial planners don’t usually think it’s worth it.
As you can see, choosing the right personal financial advisor requires some understanding. Learn everything you need to know in our free guide The Ultimate Guide To Choosing The Best Financial Advisor, For Investors With $5 Million To $500 Million In Liquid Assets
So, let’s put these first two philosophies together: If you have an active investment style financial advisor who also engages in frequent activity, not only will you likely perform worse than the markets, you will also pay higher taxes for the privilege.
- Wheeling and Dealing vs Data-Driven Finance & Risk Management
You’ve all seen the stereotypical Wall Street investor: The wild, crazy, impulsive risk-taker who does what no one else has the guts to do, sees what they don’t see, and comes out the winner in the end. It’s a fun fantasy.
If you talk with a certified financial planner (CFP) who appears to have that sort of philosophy about investing like that with your retirement money, our recommendation – as a fiduciary – is to run fast the other way.
A more trustworthy advisor will utilize data-driven investing tools and risk management solutions that protect your money without shortchanging your future. In your search for a professional financial advisor, part of your task is to find one that agrees and aligns with your values about money and investing.
You need to believe in your advisor’s system of personal financial planning and money management services.
- Open to Anything vs Specialization
Some financial advisors put the client in the driver’s seat, and just try to steer them so they avoid falling off the cliff. But their services and products cater to the client’s interests.
This type of advisor could conceivably invest one client’s portfolio 100% in stocks, another’s 100% in commodities, and another’s 100% in bonds. Their rationale would be that it’s what the clients wanted. They might steer them away from particular stocks, commodities, or bonds they believe are too high-risk, but they will let the client play a role in their portfolio management.
Other advisors specialize in something. This could be a specialized methodology, or a specialized class of investment options, such as gold, tech stocks, or energy funds.
Some advisors don’t specialize in investment options as much as in types of clients. Some specialize in only creating retirement plans, so they work with that demographic. Others work mostly with business owners, or young couples, or individuals in certain careers like teachers or dentists.
Other financial advisors, such as the team at Pillar Wealth Management, specialize in working with high net worth and ultra-high net worth clients who have over $5 million in liquid assets.
Putting all four of these comparisons together, our firm strongly recommends you look for a personal financial advisor who:
- Uses a strategic investment strategy, not an active one
- Prefers less frequent trading because of the tax savings and higher long term investment performance
- Has a data-driven system for long term, goal-driven financial planning services
- Specializes in an area of financial planning that is relevant to your life circumstances or financial situation
In general, even the certified financial planners who work at big banks and brokerage firms get most of this wrong. They do their company’s bidding and do not act in your best interests. You are better off avoiding the large investment firms as a source of personal financial planning services.
How to Choose a Financial Advisor
If you’re not sure what types of investment management services you prefer, look for a person or team who can effectively guide you, who has a clear data-driven practice, and who you can trust. Here are 3 guideposts to steer you toward worry-free financial serenity.
And keep reading – we have more resources to share to help you choose the best investment advisor for you.
How to Know You Need a Financial Advisor
The longer you live and the closer you get to retirement, the more complicated life gets with regard to your finances. Managing money in your retirement accounts gets harder.
This means that the older you get, the more likely you will want to work with a financial advisor. Also, the less you know about portfolio management, investing, retirement planning, and finances, the more likely you will need help from a registered investment advisor.
Another reason you might need an advisor is simply because you don’t have time for all this.
Here’s a list of complications that tend to pile up as life progresses:
– Real estate purchases
– Multiple 401 k and other investment accounts through work and other income streams
– Marriage, kids, eventually grandkids
– Start a business. Or two. Or three.
– Sell a business. Or two. Or three.
– Estate planning, life insurance, long term care, charitable giving
-Tax planning, required minimum distributions, not enough retirement savings
– More complicated and diverse investments
– Medical conditions increase in number and frequency
If you face a legal issue, you would seek legal help. If you face a medical issue, you would seek medical help. If you face a political issue… well, not a good example.
But if you face a finance issue, you would seek the help of a financial advisor. For affluent clients, we could add tax minimization planning, company stock liquidation, asset protection, business exits, and other challenges to the list. 7 more ways a financial advisor helps with tax strategies.
The bottom line here is simple: If you have investing goals and desired lifestyle outcomes that you aren’t sure how to achieve, then you need services from a financial advisor.
How Advisors Help You Reach Your Goals
Far too many people go through life reacting to it, rather than trying to make their future the best it can be. But once you list out some goals and desires, do you have a plan – financially speaking – for how you will achieve them?
Listing goals is the easy part. Making the plan is the challenge.
Your long term goals could relate to any or all of the following and more:
– Retirement planning (10 ultra-high net worth retirement mistakes to avoid at all costs)
– College for them or other relatives, student loans
-Estate planning and trusts
– Philanthropy – from giving to starting your own foundation
– Business – investment, startups, exits
– Real estate
– Earning passive income
– Gaining influence in a particular arena
Smart financial planning also anticipates the things that won’t go well in the future but that will still affect your finances if they happen, such as:
– Early death of a loved one
– Medical crisis for you or a loved one
– Economic volatility
– Pandemics – Covid 19
– Business failure
A financial advisor – particularly one whose services cater to affluent clients – includes these potential future events in their planning process, and customizes it to each person’s plan.
Economic volatility? In the decades you are likely to spend in retirement, it is virtually guaranteed. Is there a way to know your investments will hold up?
Most fall far short of their own needs and expectations.
The people who are most unready for a financial advisor are those who, when asked about their investing goals, just say something like, “I want to see a lot of growth.” Or, “I want my 401 k to beat the market.” Why? For what?
What matters to you? What are you hoping to achieve in your life? What are your greatest concerns and worries? What do you want to protect? What should happen to your money after you die?
The more time you devote to seriously considering questions like these, the more you realize why you need services from a financial advisor. And if your financial advisor doesn’t know what your desired lifestyle outcomes are, they can’t help you achieve them!
To get the best answers to your questions, get The Ultimate Guide To Choosing The Best Financial Advisor, For Investors With $5 Million To $500 Million In Liquid Assets.
So – what do financial advisors do to help you reach your financial and lifestyle goals and dreams? How do they create your plan?
That is THE question to ask any financial advisor you are considering working with. As you saw earlier, different advisors use very different investment processes and have different investing philosophies and services.
To learn more about our 100% customized high net worth investment planning services, begin your consultation with a simple 15-minute conversation.
For a more in-depth exploration, get our free Guide – Outstanding Portfolio Performance: The Shifts To Financial Security And Serenity For Successful Multi-Millionaires.
What It Costs to Hire a Top Financial Advisor
You might be surprised by how many different fee structures financial advisors have come up with to charge their clients for their services. Some of these fees arise because different financial situations can require additional work.
For instance, when a spouse dies, the process of shifting the surviving spouse’s finances back to ‘single’ status is quite complex – even more so if they are retired. You have to deal with IRAs, Social Security, life insurance, pensions, banks, mutual funds, beneficiaries, taxes, and all the tasks, paperwork, and the time cost for each of these.
What fees should an advisor who helps you navigate all this charge? Should it be hourly or a flat fee? Should it matter if you’re an existing client?
On a basic level, a financial advisor can charge three types of fees:
– Hourly fees
– Flat fees
But within these fees, much more variety exists.
Flat fees, for instance, can mean a flat dollar amount for creating a one-time plan that you go and implement for as long as you like. You can come back for additional services, and pay an additional fee.
Any advisor who charges a one-time flat fee is not going to be invested in your financial goals on an ongoing basis. This fee based approach is limited in its cost benefits and long term value, because whatever financial plan you develop will be obsolete within five to ten years.
Flat fees can also be ongoing percentages charged annually, monthly, or quarterly.
And, if your advisor sells products like annuities or life insurance packages, these often come with commissions on top of the advisor’s regular fees. And still other financial advisors make more money on ‘hidden’ costs, such as getting a small kickback for recommending a particular mutual fund investment with a certain bank or brokerage firm. To be clear – only a non-fiduciary investment advisor would be able to do something like that with your money without disclosing it.
What does our firm do? We believe in a fee structure everyone understands and believes is fair.
Pillar Wealth Management charges a percentage-based flat fee that covers all our services. We are a team of fee-only financial advisors. That means we do not charge extra costs for extra services, including all the work that goes into a scenario like described above. Even if we have to reach out to specialized professionals like tax attorneys, tax accountants, estate planning attorneys, or insurance brokers on your behalf – there is no extra cost for any of that time or effort.
As fee-only financial planners, we never charge commissions and we sell no products. All financial services are included in a simple flat fee.
Our flat fee starts at 1%, and scales down as your net worth increases. We require a $5 million minimum investment amount for our services.
How to Hire the Best Financial Advisor Near Me
The final topic is about how to choose a financial advisor. Some people believe they need to find financial services near them because they want to meet face to face. If in-person access is very important to you, then you can certainly make that one of your criteria.
In our experience, proximity turns out not to be as important as you might think. See 6 reasons why the location of your advisor doesn’t matter. A seventh reason not on that list, in the era of COVID-19, is that meeting with your financial advisor online is safer, as well as being easier.
So how do you find the best wealth management services for your life situation?
We have created several resources to help you answer this.
First, you need to clarify your own financial situation, your values and beliefs about investing and money, and what you expect from a personal financial advisor. You can’t know if you’ve found the right investment advisor if you aren’t sure what you’re looking for. See 10 questions to clarify your beliefs and expectations.
Second, you need to find an advisor who is a good match, once you have more clarity on your own financial situation, risk tolerance, and investing preferences. Here are 10 tips for finding a financial advisor who matches with your preferences and needs.
Finally and most importantly, you need to find a financial advisor you can trust, and who offers financial planning services that inspire a high degree of confidence that you will achieve ALL your lifestyle and financial goals.
You need someone who understands you, cares about what you care about, and will use a well-honed customized strategy to help you achieve it.
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