When interviewing potential advisors to work on your family’s behalf, you should ask a number of pertinent questions, beyond just getting basic contact and bio information, education, and credentials. You want to hire an advisor who is familiar and capable of dealing with someone of your net worth.
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.
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One of the first questions you’ll want to answer is: “Does the advisor present any conflicts of interest?” Conflicts of interest can arise in many different forms. For example, does the advisor receive any commissions on products recommended or sold? How about referral fees? Is the advisor the manager of the investment(s) they are recommending? these are all red flags that suggest a conflict of interest—and in a perfect world, you want to avoid that entirely.
You want an investment advisor who is a fiduciary. A fiduciary is required to disclose conflicts and to serve you objectively at all times. Many who call themselves financial advisors must only meet the standard of “suitability”—and advising based on whether an investment is suitable is not the same as acting in your best interest.
A high-net-worth financial advisor provides financial services for high-net-worth individuals, including retirement and estate planning, tax management, and investment planning and monitoring.
Statistically, 70% of millionaires use an advisor. They may need an advisor for estate planning, wealth management, investment advice, or recommendations on life insurance or financial products.
It’s worthwhile when dealing with complex investment portfolios, assuming the return on investment exceeds 1%, which is a reasonable assumption to make.
On average, a financial advisor earns about $70,000 yearly; at the high end, about $120,000. Given a large clientele of wealthy people, a financial advisor can make even more.
You know you have a good financial advisor if she or he is responsive to your needs and helps you meet your financial goals, including good returns on investments.
Billionaires will often employ a group of financial professionals to work with them on managing their complex assets, tax situations, estate planning, and portfolio diversification.
Since 2021, Barron’s has ranked Gregory Vaughan at Morgan Stanley as its top financial advisor, with 150 clients each of whom has an average account size of $75 million.
Investing is a risky business, so unless you are comfortable with taking on risk and managing your own portfolio, you could benefit from having a financial advisor.
Some of the major financial houses are notorious for selling both ends of a transaction and pocketing money from each side. It’s hard to see how that is working in the best interest of the client. And yet that is what broker-dealers do. they sell and they buy and they make a profit, whether it’s on the commission or on the spread between the purchase and sales prices. For the client, it amounts to a conflict of interest. Major broker-dealers make money on the spread between the purchase and sale prices. this happens a lot with municipal bond purchases. Broker-dealers don’t work for free!
Noncommissioned fiduciary advisors might recommend you buy insurance, but they would not receive any commissions or indirect compensation. they are not advising you to buy so that they can make money but rather because it’s the right thing to do and is what is best for you. Since the commissions don’t influence the advisor, he or she may be able to find low-cost policies saving you fees upon purchase and/or redemption. The advisor’s only goal should always be your best interests—not to support the sales and marketing team or the fat pockets of the insurance company.
Some advisors serving in a fiduciary capacity might still be working on commission. Always look a little deeper, and don’t be afraid to ask the question: “Is the advisor receiving any compensation other than his or her fee for services?” You must be vigilant for conflicts of interest at all times. You may not be able to eliminate all of them, but smart investors will always be aware of them.
You also, of course, need to understand the advisor’s fee and fee structure. The fees can range from as low as .25 percent if you have half a billion or more invested—or, if you are investing with a money manager, the fee could be as high as 2 percent plus 20 percent of profit. It depends on what the advisor is doing for you.
Fees Fees Fees its always about the Fees.
When one of our new ultra-high net worth clients brought in his investment statements for review, we noticed several million dollars were invested in hedge funds—so we began to ask questions: When did he invest in these funds? Who was the manager? What was their performance, and was he happy with the funds?
The answers were shocking. It turned out his investment advisor managed the hedge funds. So that investment advisor—who has a fiduciary responsibility to provide independent advice in the best interest of the client—was recommending that his client invest in the same funds he managed.
Not only was the advisor earning a 1 percent advisory fee, but he was also pocketing 2 percent as a hedge-fund fee, plus 20 percent of the profits. We made sure the client understood this was a major conflict of interest, and we explained the amount of fees the advisor was generating on the accounts.
A High-Net-Worth Financial Advisor Provides Added Value
Being wealthy has many advantages, especially having the peace of mind that comes with financial security. High-net-worth individuals accrue benefits in the world of wealth management as well.
Having a net worth of at least $1 million allows you to benefit from a broader range of financial planning services. You can hire a financial planner to assist you with a multitude of services, particularly investment options that are personalized to meet your financial goals.
A high-net-worth financial advisor will work with you to develop an asset portfolio that includes stocks and other securities, as well as mutual funds. Your advisor can recommend alternative investments, such as real estate trusts, while advising you on creating a balanced portfolio to minimize risk.
When working with you to develop an estate plan or a retirement plan or resolve a complex tax situation, a high-net-worth financial advisor can, if needed, enlist the help of other professionals, such as lawyers.
Wealthy individuals pay a lot of taxes, and working with a high-net-worth financial advisor provides the opportunity to fine-tune your investment portfolio to reduce your tax bill.
A high-net-worth financial advisor can work with you to develop a strategy for reducing your tax burden through tax loss harvesting, as well as looking at real estate investments and creating charitable trusts.
A high-net-worth financial advisor can work with you to reduce your capital gains taxes by selling stock options in a tax-efficient way.
Protection from Lawsuits
A high-net-worth financial advisor can help protect you from lawsuits by recommending the insurance policies you might need. Your wealth can be protected by putting assets into a trust, and the advisor will work with a trust attorney to create the trust.
For Those Who Aren’t Wealthy Yet
High-income earners who aren’t millionaires yet can also benefit from financial planning. They may have substantial outstanding loans, and a high-net-worth financial advisor can help them plan how to eliminate their debt through a budgeting and savings plan.
Younger people may not have the knowledge and experience to make the most profitable investments. A high-net-worth financial advisor can help them build an asset portfolio to start building wealth.
Finding a High-Net-Worth Financial Advisor
Finding a high-net-worth financial advisor isn’t easy, but it’s not impossible. Someone you know may have an advisor with whom they are on the way to meeting their financial goals, so you can talk to people in your network to get a recommendation.
There are plenty of online resources available for finding a high-net-worth financial advisor. Many financial management firms provide a website search feature to find an advisor. You need someone who has the expertise to manage the complex financial life of a high-net-worth individual. What’s critical is that any advisor you might like to work with has the background and experience to help you achieve your financial goals. The advisor should be a fiduciary, which means they put your interests ahead of their own. Look for the CFP designation or ask for a written disclosure of the advisor’s fiduciary status.