A financial advisor can add a lot of value to a high net worth or ultra-high net worth portfolio. There are many areas within the financial life of a high net worth individual that require careful assessment and thoughtful decision-making. The services of a financial advisor cost money. Financial advisor fees are usually structured in many different ways. You can read more about it in this downloadable guide on choosing the best financial advisor for individuals with $10 million or more in liquid assets.
A financial advisor is a person who advises on how to protect and grow your wealth. The job of a financial advisor isn’t just limited to portfolio management. Rather, the role of a financial advisor is quite broad. A good financial advisor is expected to provide guidance on taxation, retirement planning, risk management, insurance, estate planning, business succession, philanthropy, and many other aspects of a high net worth individual’s financial life. Here atPillar Wealth Management, our understanding of financial advisory is to help our clients, with portfolios between $5 million and $500 million, attain what we call financial serenity.
If you are a high net worth or ultra-high net worth individual, then this article will shed light on some important topics that may be in your head right now. These topics are how to find a financial advisor for ultra high net worth individuals, how to evaluate the cost of hiring a financial planner, and how the combination of financial planner fees and commissions works. Lastly, we will explore some Pillar Wealth Management financial planning strategies for your needs.
Table of Contents
- How to find a financial advisor for ultra high net worth individuals
- How to evaluate the cost of hiring a financial planner
- When does the cost of a financial planner not make sense
- Combination of financial planner fees and commissions
- Pillar Wealth Management financial planning strategies for your needs
- Do financial advisor fees play a role in the demand for such services?
How to find a financial advisor for ultra high net worth individuals
If you are an ultra-high net worth individual who is seriously considering working with a financial advisor, then you surely must be wondering how to find a financial advisor for ultra high net worth individuals. The process is not that complicated. It just takes some effort and time on your end.Pillar Wealth Management is one firm that works with individuals who have $5 million to $500 million in liquid assets.
The internet is a good place to begin. Use your favorite search engine to find out the top financial advisors in your area. Find those advisors who have experience working with ultra high net worth individuals. Also, keep an eye on the way in which the financial advisor fees are charged. We will discuss this topic in the sections below. Generally speaking, anyone with $1 million to $30 million in liquid assets (by liquid, we mean money that is readily available and not assets like your home) are considered high net worth. Those with more than $30 million in liquid assets are considered ultra-high net worth individuals.
The kind of decisions facing high net worth individuals will be a lot different from those faced by someone with $200,000 in assets. Therefore, finding an advisor who understands high net worth issues is important.Schedule your free consultation with Pillar Wealth Management to discuss any of your high net worth financial questions.
You can also find great financial advisors by speaking with your family, relatives, friends, and business partners. As a high net worth individual yourself, chances are that some of the members within your personal are also high net worth or ultra-high net worth. They may already be working with someone who is good at financial advisory. Plus, when you speak to your near-and-dear ones, you get unbiased reviews.
How to evaluate the cost of hiring a financial planner
The larger the size of your portfolio, the higher are the stakes. One wrong decision in any area can equate to a few hundred thousand dollars or even a million dollars. Therefore, every decision matters, and every detail matters. You can read about how small details in high net worth portfolios can add up in this book called The Ultimate Guide to Choosing the Best Financial Advisor: For Investors With $5 Million to $500 Million in Liquid Assets.
Let us consider one example to understand how to evaluate the cost of hiring a financial planner. Let’s assume you have $10 million in liquid assets. If you invest that money in various funds whose average expense ratio is 2%, then you would be paying $200,000 in annual fees. But, what if a financial planner advises you to shift that money into a passive index fund with a low expense ratio of 0.1% and reasonably good returns that allow you to meet your financial goals? You would have saved close to $190,000 in fees alone.
What about an advisor who frequently changes stocks in order to “beat the market”. Sure, the advisor may have beaten the market, but you would be paying short-term capital gains tax instead of long-term. Even a 5% difference in taxes can cost you hundreds of thousands of dollars. And over time, these can add up to a few million.
Now compare these costs to a 1% financial advisor fees charged by the financial planner. 1% of $10 million is $100,000. Think about all the services you get in return for the fee. Get in touch with Hutch Ashoo to know more about Pillar Wealth Management’s unique commitment to saving $100,000 for every $10 million in client assets brought to the firm.
When does the cost of a financial planner not make sense
If you have, say, $100,000 to invest, then you may be better off just investing it yourself. You can simply park the money in a passive fund or do some research and select an appropriate avenue to invest/save. Paying tens of thousands or hundreds of thousands of dollars in advisory fees makes no sense for you. Such annual fees will far outweigh any returns that you make on your $100,000.
There is a reason why wealth managers, who are a specific type of financial advisor, have minimum thresholds in terms of the portfolio size that they work with. The financial advisory activity is a full-time job for these professionals and it has to earn them a living. At the same time, it has to give a benefit to the client that far outweighs the costs of hiring a financial advisor.
Also, if you are early into your career or have recently graduated from college, then your financial life should be relatively simple. You do not have to worry about sending kids to an Ivy League school or selling a multi-million dollar property in the most tax-efficient way. While you are never too young to do basic financial planning, the low complexity probably does not require the services of a paid financial advisor.
Combination of financial planner fees and commissions
Financial planners and advisors use various fee structures. The first structure is a fee-only model. In this case, the financial planner or advisor usually charges the base fee as a fixed percentage of the total assets that a client asks the advisor to manage. We use the word “base fee” because value-added services tend to be charged as extras. However, the major chunk of the fee is a fixed percentage of the assets.
The fee-only model can also have an hourly ormilestone-based structure. In the hourly model, a fixed hourly rate is determined and then the number of hours worked on a particular task is recorded. Once the task is done, the invoice is billed to the client based on the hourly rate and the total time spent. The milestone model involves fixing an amount before commencing the task. Once the task is done, the milestone is approved and the fixed amount is released.
Pillar Wealth Management is a fee-only fiduciary firm. Start a conversation with us to find out why fee-only and fiduciary are essential in safeguarding a client’s interest.
The second financial advisor fees structure is the fee-based model. This model is a combination of financial planner fees, as described above, and commissions. The commissions are generally paid by the companies that make or market the investment products which the advisors recommend to clients. For example, if an advisor recommends a client to invest in a particular mutual fund or buy a certain insurance policy, then the mutual fund company or the insurance company respectively will be a commission to the advisor.
You can read about the pros and cons of both these fee structures in this complimentary book on choosing the best financial advisor for investors with $5 million to $500 million in investible assets.
Pillar Wealth Management financial planning strategies for your needs
You now have some idea about how to find a good financial advisor and how to evaluate the cost of engaging a financial advisor. You also understand that there are different fee structures used in the industry. As you go about searching for the most experienced and capable financial advisor, it may be a good idea for you to know a little bit about Pillar Wealth Management financial planning strategies for your needs.
Pillar Wealth Management focuses on offering personalized service. It does so because it understands that wealth management is not a one-size-fits-all process. Every client of ours is unique and has unique financial goals. Our job is to help our clients achieve each one of those goals.
To be able to succeed in this endeavor, we have to get to know everything about the client in a significant way. Whenever a client calls our office, we know them by their first name. In fact, we only took on 17 new clients last year because our focus is on quality and not volume.
Our approach to financial advisory also allows us to regularly conduct stress tests on all our client portfolios. We use stock market data going back to the 1920s and test for portfolio resilience against black swan-like events. Our periodic updates are not standard templates that the larger firms send out. We encourage you to give us a ring to discuss our “white-glove” way of working.
We also try and save our clients $100,000 in costs for every $10 million that they ask us to manage. You can read all about the various investment costs that are not apparent to everyone in this guide on improving portfolio performance for investors with $5 million to $500 million in liquid assets.
Do financial advisor fees play a role in the demand for such services?
A surprisingly high proportion of Americans do not use the services of a financial advisor. The most common reasons are the abundance of information online, the high indebtedness among the average person, and the perception that financial advisors are meant for those with large amounts of wealth.
We believe that there may be some logic in the last point. The more money one accumulates, the more complex are the decisions related to that wealth. The high and ultra-high net worth individuals, who have a few million dollars with them, have to think about maintaining a lifestyle, future financial security, the legacy that they want to leave behind, taking care of multiple properties, taxes, and many other things. A financial advisor can help make smart decisions on all such matters.
At the same time, it is also true that most Americans do not have their financial lives sorted out. Even high net worth individuals have experienced significant erosion of wealth during market crashes. No one is immune to the ups and downs of life. However, with the right advice and someintelligent decisions, one can protect hard-earned wealth and achieve all the life and financial goals that one has thought of.
Hutch Ashoo and Christopher Snyder are the expert founders of independent, fee-only, and fiduciary wealth management firm Pillar Wealth Management. If you would like to speak with them or simply ask any questions about how custom and trusted wealth management advice is offered to highnet worth individuals with $5 million to $500 million in investible assets, then feel free to start a conversation.
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