Why High Net Worth Investors Should Insist on Getting an ‘Independent Fiduciary’ Financial Advisor
See How a Non-Fiduciary Advisor Can Cost You Millions
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 you need, you’ve probably seen terms like ‘fiduciary’ and ‘independent’ quite frequently.
Strategies For Families Worth $25 Million To $500 Million
The Art of Protecting Ultra-High Net Worth Portfolios and Estates
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, our hope is 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 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 just to get any kind of 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 non-fiduciary ‘advisors.’ It’s completely worthless! We’ve also seen absurdly low death benefits, some under $20,000. What is the point? 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 a 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 up front 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 that’s possible is because of the high fees they’re also charging.
- Recommend selling and buying stocks for no reason
The reason broker-advisors do this is because 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 advisor, 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 to never even 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 interests, putting yours before theirs at all times, regardless of circumstances. 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 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 and get your copy today, and find out what kind of advisor is best for you.
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, wire houses, 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 regulators 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 is gone. Washington Mutual is gone.
Let’s not forget that it was 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 just 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.
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 brokerage firm so they could 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 the experience they need 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 6 huge advantages of working with an independent fiduciary advisor, as opposed to a captive advisor, broker, or sales rep.
1. Diverse Investment Options
Independent advisors can recommend a vast array of investment options 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
Fiduciary advisors do not have to sell a certain amount of products just 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 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 single 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
- Merger and acquisition 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 same day
- Client appreciation events
- Ongoing education
All of this and so much more is 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 is not limited to in-house reports and analysis 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, Napa, or Palo Alto, 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.