Why High Net Worth Investors Should Insist on Getting an ‘Independent Fiduciary’ Financial Advisor

How Non-Fiduciary Advisors Derail High Net Worth Portfolios

As a high net worth or ultra-high net worth investor looking for a financial advisor you can trust and who will get the investment performance results from you need, you’ve probably seen terms like ‘fiduciary’ and ‘independent’ quite frequently. Honestly, while this article is a great start, anyone with $5 million should request and read our 70+ page in-depth book about the subject. It’s free by clicking here.

STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION

 

7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning

 

The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.

Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.

But why are these qualifications so important? What do they really mean? What do you get from an independent fiduciary that you don’t get from a non-independent, non-fiduciary? Is the difference really so great?

Once you’ve finished this article, we hope that you will never need to ask those questions again. If you want the best of everything – maximized investment performance, minimized costs, properly managed risk, and absolute financial flexibility – it’s fiduciary standard or bust.

To alert you to how serious this choice is, here are just a few tricks of the trade that non-fiduciary, commission-based, conflicted sales agents and financial ‘advisors’ can get away with.

What Non-Fiduciary Advisors Can Get Away With

Sell you annuities with annual fees as high as 4%

With 4% of your money wasted in annual fees, what kind of investment performance must you achieve to get any decent return? Yet, fees this high are not uncommon in the annuity sales business. As a high net worth investor, if you purchase an annuity for $3 million that charges 3% fees, that’s at least $90,000 per year being spent on nothing.

Sell unnecessary life insurance policies with scant death benefits and high commissions.

We’ve seen unmarried adults with no kids get sold life insurance policies by someone like a non-fiduciary ‘planners.’ It’s completely worthless! We’ve also seen absurdly low death benefits, some under $20,000. What is the point? An insurance company with a fiduciary advisor would not and could not recommend life insurance policies of this nature.

Convince a dying spouse to sign over their savings to an annuity

We’ve seen widows left with no access to their departed spouse’s retirement savings because several insurance companies, through their broker, swooped in and convinced the dying spouse to put all their money in annuities. Other people in poor health themselves have been duped into buying annuities with ten-year surrender penalties.

Sell annuities that will result in high taxes.

When you start withdrawing from an annuity, if your policy is large enough, the income can bump you into a higher tax bracket. Combine the money you’re now losing to taxes with the typically high fees and upfront commissions, and what are you left with?

Mislead you with promised investment returns

There are annuities promising 8%, 9%, even 10% guaranteed rates of return. The only way this typical investment advice is possible is because of the high fees they’re also charging.

Recommend selling and buying stocks for no reason

The reason broker-dealers do this is that they get new commissions off each sale, even if the act of selling costs you money in the form of higher taxes, additional fees, or lost investment potential. It’s not for your benefit. It’s for theirs.

Disappear after making a sale

Many commission-based advisors aren’t really advisors. They’re sales reps. And once they’ve made the sale, you don’t hear from them again unless you inherit some money or your annuity surrender period is approaching, and they want to lock you up into another one. Then they call. Other than that, you never hear from them.

Invest your money in high commission, inflexible investments without telling you

Hopefully, you see the common thread in this small sampling of ways a non-fiduciary financial professional, sales rep, or broker can cost you millions of dollars over the life of whatever they convince you to do.

You pay higher taxes, higher commissions, and unnecessary fees. You lose access to your money and get worse performance in return. And you get no guidance as your life situation changes over the years.

What you’ve read already, frankly, should be enough to convince you never even to consider working with a non-fiduciary financial advisor or wealth manager.

In contrast, a fiduciary is bound by the Securities and Exchange Commission to act only in your best interest, putting yours before theirs at all times, regardless of circumstances, to avoid any potential conflicts of interest. Besides, when you find a certain investment company, check the credibility of its advisors. You should work with a professional known as RIA (Registered Investment Advisor), CFP (Certified Financial Planner), and so forth. Also, when you have found several investment advisors, you can ask them several questions before deciding to work with the best one.

Once you settle the fiduciary issue, your only remaining task is to find a fiduciary advisor you can trust who also has the experience and knowledge to deliver the performance you need.

You can get stuck with an inept fiduciary. If that is a concern for you, we’ve created a free resource for high net worth investors – The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $3 Million to $70 Million Liquid Assets. Click the button below, get your copy today, and find out what kind of advisor is best for you.

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Why People Feel Safer with Big Banks, Even Though They Aren’t

If you need more convincing about the risks of working with non-fiduciary, non-independent advisors, let’s discuss some reasons people feel drawn to big firms/banks, wirehouses, and brokers.

They seem more trustworthy.

Big banks have tall buildings, national marketing, and brand authority. This makes them feel more trustworthy and perhaps more competent.

Familiar and convenient

You might already have other investments or accounts with a large firm, so it feels natural to turn to them for financial advice as well.

Probably won’t rip you off

You presume with large firms that they must be legitimate because board members must be watching them.

Now, let’s take a closer look at these three reasons people feel better about large firms.

Not So Trustworthy

First, anyone remember the 2008 recession? Some of these same trustworthy, familiar, and regulated big banks no longer exist. Lehman Brothers are gone. Washington Mutual is gone.

Let’s not forget that the large banks that made some questionable investments – and pushed them on their customers, too – that played a key role in the financial collapse. Are big banks really more competent and trustworthy?

Most people didn’t feel that way in 2008. Is it any different today? Some big Wall Street firms have paid over $100 billion in fines for cheating their clients. So yes, they are regulated. And those regulators are busy!

Why does this happen? In many cases, it’s not the advisor you meet with who mismanages your money or makes conflicted decisions, not in your best interests. Often, it’s the executives above them. But from where you’re sitting – who cares? It’s still your money being siphoned off (via fees and layered expenses to pay the billions in fines!).

Their Interests Before Yours

The advisors working with you at these large firms may not be recommending the best possible investment plans to you. They may be recommending what they have been told to recommend by their superiors.

Or, they are making the recommendations, but they’re choosing from a pre-determined set of options with terms, fees, and other perks that benefit the corporation. Their first loyalty is to their bosses and their shareholders.

They must make profits. That is their primary interest. Not your financial serenity. Not your lifestyle goals and dreams. Not your family. In some cases, the advisor you meet with also gets bonuses and extra commissions for selling products that benefit their firm.

In those situations, the advisor and the bank are both operating out of interests other than yours. The term for this is ‘captive advisor,’ as opposed to being an independent advisor. In a sense, working with Robo advisors is better than working with non-fiduciary financial advisors.

Less Experience, Less Expertise

Finally, consider the level of experience at big banks and brokerage houses. According to a Schwab study, 33% of independent advisors began their careers working for a large bank or investment firm to gain enough experience before opening their own office.

Do you see the implication of that? Fresh graduates in finance go to work at the big banks to gain their experience before opening their own practice. So if you’re using a big bank, you are likely working with a less experienced financial advisor!

By the way, the same survey found that 48% of independent financial advisors think working with a fiduciary is the single most important consideration when choosing an advisor. It’s at the top of the list. It should be at the top of yours too.

What You Gain with an Independent Fiduciary Advisor

Let’s take a quick look at the 6 huge advantages of working with an independent fiduciary advisor instead of a captive advisor, broker, or sales rep.

1. Diverse Investment Options

Independent advisors can recommend a vast array of investment products from multiple companies. They are not beholden to one bank or one firm. They are not limited. Thus, in the quest to optimize your investment performance, they possess the widest possible array of tools for achieving that.

2. No Quotas, Commissions, or Sales Targets

When an advisor is a fiduciary, he or she does not have to sell a certain amount of products to earn their own income. We pretty much never recommend annuities of any sort, for example, because they are almost never in the best interests of our clients.

It’s a simple decision. And we have no conflict of interest that can lure us into thinking otherwise. A bad deal is a bad deal.

3. Simple Fee Structures

An all-inclusive fee-only financial approach (not fee-based – big difference) means you don’t need to worry about fine print buried on page 43 of the prospectus. Fee-only means fee-only – a flat fee that covers everything.

Pillar Wealth Management charges a simple 1% of assets under management (discounted once over $10 million). All our other services come with that. There are no tiers, no hidden charges, no exclusive services you have to pay more to get. It’s all there.

4. Motivation to Excel for You

Charging a percentage of your assets under our management is the best possible approach for you. Why? Because now our motivation to optimize your investment performance is tied to our own income. When you make more, we make more.

So naturally, we want you to make more. When we make all our decisions and recommendations according to your best interests, that means your assets perform. Our interests are aligned with yours, not outside of them.

5. Many Additional Services Offered

Again, the 1% fee is all-inclusive. What does it include?

At Pillar Wealth Management, we also help with:

• Estate planning

• Insurance advice

• Trustee selection and family governance

• Coordination with your tax advisor, accountant, other team members

• Mergers and acquisitions help for businesses

• Managing family business succession

• Debt consulting (lines of credit, mortgages, etc.)

• College education planning (such as 529s)

• Assistance setting up care-giving for aging parents

• And much more…

The more things we can do for you, the less you have to do. Isn’t that what you want out of life? You can stare at financial statements and forms all day, or you can let us do that while you go out and live.

Our service also includes:

• Quarterly updating and rebalancing

• State of the art account reporting

• Actual humans who answer the phone or call back the same day

• Client appreciation events

• Ongoing education

All of this and so much more are included in the 1% fee.

Do you know how much you would pay if you sought out expertise in all these areas on your own?

6. More Access to Higher Quality Research

An independent advisor with fiduciary duty is not limited to in-house reports and analyses sent down from the higher-ups. We can pull from an unlimited supply of resources. And we can create our own.

Pillar Wealth Management has created an in-house portfolio planning process that is unrivaled even among fiduciary independent wealth managers who serve only high net worth and ultra-high net worth clients. Learn more about our portfolio planning process

Your High Net Worth Fiduciary Independent Wealth Manager

If you live in the San Francisco Bay Area, San Jose, or Napa Valley, and you’d like to find out if Pillar Wealth Management is a good fit for your financial planning needs, schedule a chat with one of our wealth management experts by clicking here.