High Net Worth Financial Planning Starter Kit
How a Financial Planner Helps Lead You to a Stable, Secure, Enjoyable Life and Retirement
Everyone needs financial planning. This is the primary distinction between financial planners and financial advisors. Financial planning is something everyone does, no matter who they are, and even if they’re terrible at it.
Financial planning is what a financial advisor does to help you achieve your goals and your desired lifestyle outcomes. It is the fuel that lights the fire. Otherwise, this is all just talk. We talk first, but it is the financial plan that turns the talk into the investment performance and financial serenity that everyone wants but that few – including ultra-high net worth investors – know how to achieve.
What you’re about to read is a complete introduction to financial planning. What it is, why you need it, the basics of how to do it, and how to find the best financial planner for your life situation.
If you are looking for high net worth financial planning, Pillar Wealth Management is a fee-only financial planner that exclusively works with clients who have between $5 million and $500 million in liquid assets.
If you’re want more help in knowing how to find and choose the best financial planner, please use our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, For Investors With $5 Million To $500 Million in Liquid Assets.
Here’s what we’ll cover in this financial planning starter kit. You can read the whole article or click ahead to the parts that most interest you.
Table of Contents
- What Is Financial Planning?
- Why Do You Need Financial Planning?
- Set Your Financial Goals
- What Are the 5 Steps of Financial Planning?
- Understand Your Current Financial Situation
- Plan for the Future – ‘What If’ Scenarios
- How We Customize Your Portfolios with our Financial Planning
- Managing Money
- Review Your Financial Planning
- How Do You Know Who to Trust with Your Finances?
What Is Financial Planning?
Financial planning is the process of turning financial and lifestyle goals into reality. It takes your current financial situation – your assets both liquid and non-liquid, your debts, your income, and your known and unknown future expenses – and lays out the strategies that will help you achieve your short and long term goals.
Your financial plan will utilize savings, investments, retirement accounts like IRAs, and cash flow, as well as life insurance, real estate, debts, and non-liquid assets such as art and collectibles. If you own a business, it includes that as well.
Why Do You Need Financial Planning?
The simple truth is, finances and the decisions surrounding them get more complex and time-consuming as you get older. And, the stakes are continually raising. Life was simple when all you had to do was pay the rent and live in a one-bedroom apartment by yourself.
Financial planning helps you avoid feeling overwhelmed by everything. It gives you a path to walk on, and a map to know where you’re going. A financial plan gives you clarity and certainty.
Preserving Calm in the Storms
Also, when things go wrong in the world, a financial plan helps you stay calm when everything in and around you wants to panic. As we like to say, every financial planner is a genius when the economy is doing great. But once a virus clobbers the markets, then you find out who actually knows how to create financial plans. A plan anticipates what might go well and what might not.
Many people who call themselves financial planners are more like data entry specialists. They put your information in a computer, let you feel like you have control of your wealth by letting you choose your favorite asset allocation, and then turn on the autopilot and watch your wealth rise and fall with the tides.
Preparing for Life Transitions and Events
The best financial advisor are thinking ahead about your upcoming major life transitions, and helping you be ready for when those moments come. Have kids about to graduate high school or college? How is that going to affect your finances? That should have been in your plan – if you had one – since they were five years old.
And speaking of asset allocation, a financial plan doesn’t just pick one for you. It continually adjusts your portfolio to maintain the most optimized allocation. Pillar’s customized financial plans adjust and rebalance your portfolio every quarter – four times per year.
You would be surprised to learn how infrequently – if ever – some financial planners build ongoing adjustments into their plans.
Liberating Your Time
Probably the top reason high net worth investors need financial planning help is because they simply don’t have time to deal with it themselves. High net worth and ultra-high net worth households have much more complex and unique needs, financially speaking. So the time required to keep on top of everything and make smart decisions is greater as well.
A financial planner reduces that burden on your time.
More Financial Complexity
If you have high net worth, think about your situation for a moment. You probably have multiple accounts of many different types. You may also have multiple sources of income and a swath of expenses – especially if you own businesses or real estate. You may have stock options in companies you’ve worked for, valued highly. But – how secure is that value, and should you sell any of your stock when you retire?
High net worth investors have more to gain, but also more to lose.
Retirement Is Coming
Finally – everyone will stop working one day. What are you going to do then? You’ll have more time each day, but less income. You’ll have shifting expenses, and a little less predictability in terms of things like medical scenarios. You’ll have more freedom to do things you’ve always wanted to do.
Set Your Financial Goals
So how is a financial plan created? It begins by setting and specifying personalized goals for your life and your wealth. The word ‘goals’ gets tossed around a bit too carelessly by financial planners and wealth managers.
These aren’t really goals so much as deeply held desires – things you really care about and want to do with your life that relate in some way to your money.
These desires could be related to family, like paying for college or caring for an aging relative or a child with special needs. They could relate to recreation, like travel. They could relate to things like real estate and business ownership, diversifying your streams of income. They could relate to influencing the world in some way, such as through philanthropy.
But just saying “I want to retire and not worry” isn’t a goal. That’s vague. What does ‘not worrying’ mean to you? It won’t mean the same thing for everyone. Another common one is, “I just want good investment performance.” But what is ‘good’? Furthermore, why do you want it? What are you hoping to do with it?
Do you just want to sit around watching TV for thirty years, and not have to worry about money? Some people do, and that’s okay. But financially speaking, that’s very different from someone who wants to own two homes and travel to a new country every year of their retirement.
‘Good performance’ and ‘not worrying,’ when viewed within these contexts, will look very different.
So you must set clear, specific financial goals – your desired lifestyle outcomes. Examples might be:
- Have enough to cover any future medical expenses without touching my IRA
- Meet basic expenses using my pension and Social Security and use the rest of my wealth for enjoying life
- Start a foundation when I turn 70 and fund it with $500,000
- Leave each of my kids $1 million when I die, but only let them access $250,000 at first
- Buy property in Costa Rica at age 60 and travel there for two months every year
Do you see how specific these are? This is what we’re talking about when we tell people to “set goals.” And again, you can see why “goals” isn’t a good word for these. These are financial-related desires. These are deeply held dreams and hopes that matter to you.
This is what it means to set your financial goals.
What Are the 5 Steps of Financial Planning?
You’ve already seen the first step, which is the foundation for all the others. List out your desired lifestyle outcomes. Attach a dollar figure to them, when possible (which it almost always is). Here are all five basic steps in financial planning.
Set Your Financial Goals
Create a Plan for Investment Growth and Protection
Your goals give you targets to aim for. In the previous example, $1 million for each of the three kids. $500,000 for the foundation. $500,000 for Costa Rica. $2 million for future medical costs.
So take a look at your current financial situation. Account for your monthly expenses. How much do you need to grow in order to meet all those goals, within each of their timelines? From here, you can create your plan for reaching each goal. Figure out how much your portfolio needs to grow each year.
Set Your Asset Allocation
This is where the ‘art’ of financial planning begins to reveal itself. You’ll hear a lot of talk about being 70% in stocks and 30% in bonds, or maybe 60/40, or 80/20, or change it a little as you get older. Much of this talk misses the point entirely, because it bypasses steps 1 and 2 in the process of financial planning.
For an extreme example, let’s say someone writes out all their specific desired lifestyle outcomes, and to fund them all will require $4 million. Suppose they have $20 million already. Well then, investment performance doesn’t really matter too much for this person!
On the other hand, suppose a similar person with $20 million has goals that will require $50 million, and they’re 55 years old. Well now, we’ve got a different set of needs, which will require a very different asset allocation.
You see – asset allocation doesn’t drive the plan. The plan, driven by the goals, reveals the most optimized asset allocation. There is no “best” allocation.
Rebalance and Update Every Quarter
As we often say, every plan will fail if left alone in a drawer. You must continually revisit your plan, update it as your life situation and desired outcomes change, and rebalance your portfolio to adhere to your asset allocation.
Or, if the time comes when your allocation needs to change, then you do that too. You see, the goals you set long ago will change over time. Maybe a hurricane decimates Costa Rica and you decide you don’t want to move there after all. Well, that frees up money you had allocated that can now be used elsewhere. But then maybe your business gets sued and you have to sink a bunch of money into fighting a legal battle.
You must update your plan when significant changes happen in your life.
Pay Yourself Predictable Monthly Income
This is most critical in retirement. Otherwise, it’s too easy to start worrying about whether your money will last throughout your life, and you end up needlessly restricting your spending. Likewise, for a different kind of person, it can be too easy to just spend freely and not think about the amounts because you have millions saved up.
No amount of money exists that cannot be spent down to nothing. So your plan should specify a monthly income, and you operate based on that, excepting for major purchases and key life events.
Now, if you don’t have high net worth, these five steps should provide you a good starting place for financial planning. If you do have high net worth, you probably want a little more detail in steps 2 and 3.
See the 8 most critical parts of a high net worth financial plan – this is how Pillar creates 100% customized plans for our clients that assure them of achieving all their desired lifestyle outcomes. Yes, we are that confident in our financial planning process.
Understand Your Current Financial Situation
Doing the best financial planning requires a fair amount of work on the front end – especially for high net worth families. For retirement planning, the workload is even greater.
We created a checklist of 29 pieces of financial information you’ll need as you begin planning for retirement. The checklist is broken down into four categories:
Sources of income you’ll have during retirement
This includes everything from bank accounts to IRAs to health savings accounts to Social Security, and many more.
Sources of debts you will continue to owe
You might owe debts on a business, or from a medical situation, or from a divorce, or many other sources. You’ll want to list all these out before creating a retirement financial plan – or any plan for that matter.
Optional expenses during retirement
This is where your desired lifestyle outcomes show up. What do you want to do with your life, and how will your finances support those desires?
Basic steps to start taking now
This is where the checklist ‘earns its money,’ so to speak. There are things you need to be doing now to prepare for your future, especially as it concerns your retirement. Work through all these items in the checklist carefully, and your retirement planning process will be much less stressful.
Plan for the Future – ‘What If’ Scenarios
Planning for a financially secured retirement begins by taking the steps within #4 listed above. This includes things like:
- Maximizing annual contributions to all your possible accounts
- Knowing how and when withdrawals from each account get taxed
- Preparing your estate plan
- Getting set up with the right insurance
You can also use our Retirement Planning Guide for further help.
But beyond that, your future plans must consider what we call ‘what if’ scenarios. This part of financial planning is so important that we have produced many free resources to elaborate on it. Here are a few of the most common ones:
Caring for Relatives
This includes aging relatives, but can also include children who experience a costly medical problem, or who have special needs. Medical costs can wipe out even some of the largest portfolios, given enough time. Long term care can cost over $10,000 every month, easily.
Medical unknowns can happen to anyone in your family, including you. One of the worst financial repercussions of both medical unknowns and caring for relatives is that it doesn’t just cost a lot of money, but oftentimes it removes you from the workforce or reduces your income to a degree. So you get hit from both sides – more going out, and less coming in.
If you don’t plan ahead for unexpected medical costs, this is one of the easiest ways for your previously sparkling financial plan to instantly become worthless. Before the medical problem, you may have been thinking about buying a new business, or perhaps selling an existing one. Now? Not as simple a decision.
Same with real estate. Maybe you were planning to buy a second or third home and then rent it out for passive income. Then your spouse becomes very ill and your whole life changes. Do you still want that other home?
You might be forced to reduce what you planned to give to your heirs, reduce charitable gift planning, change your estate plan in other ways, or even downsize your lifestyle in some way.
All of this suddenly becomes ‘on the table’ when a huge and unexpected medical situation arrives. See how high net worth families can secure their finances against unexpected medical costs.
If you want to do a deep dive into how to protect your wealth no matter what comes your way, get our signature written work, The Art of Protecting Ultra-High Net Worth Portfolios and Estates, Strategies for Families worth $25 Million to $500 Million.
External events can cause just as much trouble for your portfolio and financial planning as ones within your family. The coronavirus has served up a sadly perfect example of this.
No one saw it coming. But – the possibility of it coming was most certainly knowable. And smart financial planning would build this possibility into its architecture.
Because external world events affect markets and investments, planning for these looks very different than planning for things like medical costs. The best financial planners and wealth managers have developed processes for how to prepare for and respond to situations like this so your portfolio doesn’t implode, even if the markets are. Here’s more on how to protect your portfolio from world events.
Not all ‘what if’ scenarios are negative, financially speaking. If your parents have high net worth, then you have to consider that you may be the recipient of a large inheritance one day. Top financial planners will incorporate this into your plan, even if it’s decades before you anticipate it happening.
In our experience, we have seen three basic responses to receiving a large inheritance:
- Do nothing and accomplish nothing
- Do something, but don’t plan it, and squander the inheritance
- Do something, and with smart planning, maximize your inheritance’s impact
How We Customize Your Portfolios with our Financial Planning
If you want the best financial planner near you or who best matches with your situation, don’t just take the first person with a nice Facebook ad. Use The Ultimate Guide To Choosing The Best Financial Advisor, For Investors With $5 Million To $500 Million In Liquid Assets. This decision is too important to leave to chance.
How does Pillar achieve successful and fully customized financial planning for our high net worth clients?
Our innovative approach combines about 100 years of historical market performance data, going back to before the Great Depression, with 1000 ‘what if’ market-based scenarios.
With 100 years of data, we can observe how your portfolio would have performed through all the volatility of wars, depressions, booms, busts, and inflationary excess.
With the 1000 ‘what if’ scenarios, we can see how your portfolio would hold up against many more situations than have happened in history. The key to this working, however, is that these scenarios have been extrapolated based on the historical data. Developing and perfecting this process to us many years.
But here’s the result of it all:
You can gauge the strength of your financial plan by stress-testing it, using these 1000 scenarios. And because your plan has been built on the foundation of your desired lifestyle outcomes, not just a randomly chosen asset allocation, our projections will assuredly declare you to be either exceeding, achieving, or falling short of your desired outcomes.
If you’re not exceeding your goals in 70-85% of these 1000 scenarios, we will adjust your plan until you are.
This is the surest way we have ever seen in over 30 years of high net worth financial planning experience to assure you that you will achieve everything you want out of life.
There’s a lot more to say about this, of course. You can read more about it in this free eBook, Improving Portfolio Performance, The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
Or – if you have a high liquid net worth above $5 million – you can talk to us as soon as possible and see how the financial plan we create for you holds up to our stress-tests.
Talk to an Ultra-High Net Worth Certified Financial Planner
Once your financial plan is in place and has been applied to your portfolio, you can sit back and watch it start to work.
For three months.
Every quarter, you want to return to it, update it based on changes to your life, and rebalance your portfolio. The rebalancing part is how you manage the money in your portfolio. And what you want to manage is your asset allocation.
A well-known study by Brinson, Beebower, and Hood found that over 90% of the variation in your portfolio’s investment performance can be traced to your asset allocation.
This is the single most important variable – by far – in financial planning and ongoing money management. See 6 reasons why.
Once you’ve settled on the ideal asset allocation for your financial plan, you must work to maintain it. If equities grow excessively in one or two quarters, and your allocation starts to get lopsided, you must reposition your assets to restore the ideal allocation.
If equities lose money or don’t increase much, you’ll want to shore those up to restore the right mix.
This is a process that must continue throughout your lifetime. And the fruits of it are very enjoyable. You get financial serenity – never having to worry about money. You get to achieve all your most desired lifestyle outcomes.
Managing asset allocation is how you manage money. So you include this ongoing management in your financial plan, from the beginning. And you set dates in advance to check your progress, update the plan, and rebalance your asset allocation. Then, your plan stays on track, and life is good.
Review Your Financial Planning
Once your plan has been created, take time to review it in entirety, including the plan for ongoing money management.
You might find something missing, like a lifestyle outcome you forgot to include. That’s okay. Now is the time to get it right, because then you can adjust it with the least amount of effort and disruption as you go forward.
How Do You Know Who to Trust with Your Finances?
All this probably sounds great. Whether you want to use Pillar or someone else, you are ready for help with financial planning, because you want to achieve all your most desired lifestyle outcomes.
But there’s one problem. How do you know who to trust?
Trust has two components when it comes to money and financial planners:
Can I trust you with my money – on a personal level?
Can I trust you to do your job well – on a professional level?
In other words, you don’t want to be scammed, and you don’t want to be disappointed.
The best financial planners deliver on both counts with all their clients.
On the personal side, here are six questions you can test them on to confirm you can trust a financial planner with your portfolio.
Do you have a passion for financial planning?
A financial planner should love their work. They should love seeing people achieve goals and relieve their anxiety about their money. Doing everything they possibly can to deliver stability for you even in tumultuous times should consume them. You can detect passion only when you have a real conversation. You can see it in writing, but you need to hear it too.
Are you persistent?
Not in the sense of sales. The best financial planners continually work the plan until it succeeds. They aren’t satisfied just to collect their fee and call it a day. The success of their clients matters to them.
Do we get along?
It’s hard to trust someone you don’t get along with. Don’t overlook this one.
Do you respond to my communication?
The best financial planners answer their phones and respond to emails. They don’t ‘ghost’ you. If you have urgent needs and time-sensitive questions, you need answers now. Responsiveness in the early stages of communication with a financial planner is an indication of how it will be later.
Are you an independent fiduciary?
Both matter. Not just one. You want a certified financial planner who is both independent, meaning a private practice and not a big corporate bank, and a fiduciary. See how a non-fiduciary, non-independent financial planner can cost you millions.
Do I feel confident about my future after talking to them?
You should. Talking to the best financial planners should make you feel good. Empowered. Confident. Hopeful. More upbeat about your future. That’s what we’re offering, so you ought to feel it after talking to us. If you don’t, something might be off.
In addition to trusting a financial advisor on a personal level, you want results too. Here’s more about trust, and 4 questions about getting good performance.
Talk to an Ultra-High Net Worth Certified Financial Planner