The Truth about Personalized Wealth Management Plans

What do financial advisors mean when they say, “Your plan is customized”?

If you ask any wealth manager or financial advisor if they create customized or personalized wealth management plans, they will probably say ‘yes.’ The problem with that is, how are they defining ‘customized’?

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.

Whether you’re talking to a large brokerage company like Fidelity, Vanguard, or Schwab, or an independent wealth management firm, they will all claim to create customized investment plans. So, how can you really know what you’re getting if everyone appears to be promising the same thing?

For ultra high net worth families and investors especially, the devil is in the details. For a glimpse into some of these details, get our free ultimate guide written for anyone with over $10 million in liquid net worth, 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning.

 

Are 100% Customized Investment Portfolios Possible?

 

In a fully customized scenario, every single detail of the investment plan would be uniquely chosen and defined based on the investor’s specific situation – their goals, desires, financial assets, work situation, retirement situation, family situation – every detail that influences their long term financial planning.

While that might sound great – and it is, when it’s done right – a resulting problem is, how do you know a 100% customized plan is better than a partially customized one?

This is where you run into trouble if you go to the big firms like Vanguard, Schwab, and Fidelity. Every plan entails risk. To gauge the probability of success for any plan against its risk requires the existence of an objective instrument that can quantify the risks and rewards of that plan.

Don’t miss that. It’s very, very important.

You can get a ‘customized’ plan just about anywhere, depending on what ‘customized’ means. But if you don’t have some form of assurance that is based on something more than gut feelings or ‘it worked for another guy (but then, how is it customized?)’, then your customized money management plan may not be any better or worse than picking a few index funds with a dartboard.

We’ll talk about how you can have mathematical assurance about our fully personalized wealth management plans a bit later.

But first, we need to unpack the layers of customization – all the main things you can and should have customized in your investment portfolio. And as you’ll see, most large firms cannot deliver customization in all these areas. They will either offer a template, offload some of the work to a different firm, neglect certain areas altogether, or let you pick, and then call that ‘customization.’

8 Aspects of Customization for Investment Portfolios

Customization could touch on far more than eight areas, but we wanted to point out the biggest ones so you begin to see what 100% customization entails, and how far from it most firms actually are. Let’s start with the basics.

1. Personalized Wealth Management 101 – Choosing Funds

Yes, customized investment solutions should include getting to choose your investments. This is pretty obvious. It might mean selecting particular mutual bonds, whether international equities, bonds, large cap, mid cap, ETFs, index funds, actively managed funds, and all the rest.

Do most firms let you choose the equities and funds you want to invest in? Of course they do. And this is one piece of customization, which is why pretty much every firm can claim to offer customized money management plans. But these are just the basics.

 

2. Personalized Wealth Management 201 – Choosing from ALL Funds

Hold on a minute…

Do large firms like Schwab, Fidelity, and Vanguard really let you choose your own investments, no matter what?

Actually, not necessarily. Before we explain, understand what’s behind what we’re about to share.

We did a months’ long ‘mystery shopping’ investigation of these three firms. We created a fictional ultra high net worth persona, and hired someone to take that scenario to these three firms and work through their high net worth wealth management service processes.

We held multiple calls with all three firms. We experienced their service, observed their strengths and weaknesses, and developed a checklist [link to checklist page] to compare them with each other and with us. We also produced several other blog articles discussing the pros and cons of these firms, and differences between how these companies serve ultra high net worth clients.

With that backdrop in mind, let’s see some limitations on the customized investment solutions offered by large companies.

First, they may charge different fees depending on the funds you select. Fidelity, for example, charges a higher fee for outside funds than they do for in-house funds. They have reason for this – outside funds cost them more, so they just pass those costs on to you. Nevertheless, it’s a disincentive to creating a fully customized investment portfolio.

Vanguard’s initial proposal to us was comprised entirely of Vanguard funds. They made clear they can access outside funds as well, but this is not their standard process. They do not create portfolios, by default, by looking at all possible investment options and creating a fully customized portfolio. Their default is to use their own funds – and just index funds and ETFs at that.

So, you have to tell them you want something else if you think you need a different investment plan, but their guidance will not lead you in this direction on its own. They will not offer it to you on the front end.

 

3. Asset Allocation

Asset allocation can be customized in any number of ways. On the surface, every company ‘customizes’ this one too. You can have 80% equities, 20% bonds, or 70/30, 60/40, 100/0, or any other combination of percentages. That’s the simple stuff.

You can also allocate investments into sub-categories. Equities, for instance, can include individual stocks or broad-based mutual funds. You can have international funds, industry-based funds, funds based on company size, funds made up of newer companies, established companies, and so many other categories far too numerous to mention.

So, the question is – how do you take all these options and ‘customize’ them? How would anyone know which combination of investments are best for each individual investor?

In our investigation, Vanguard proposed a 75/25 basic allocation. Schwab proposed 80/20. And Fidelity broke our assets into two groups, with one invested 85/15, and the other 70/30. But it was made clear that these can be adjusted – based on our preferences. In other words, the allocation be customized.

But, what determines our preferences? How would you, as an investor with ultra high net worth, expect a wealth manager to determine your ideal, customized asset allocation?

For many, a key factor is risk tolerance.

But here’s the rub: How do you know your risk tolerance? Furthermore, even if you do have a quantifiable way of defining this (which none of the large firms do), how do you know your perceived tolerance for risk is ideal?

Do you err toward protecting your wealth, or more toward building it? Do you want both? How much of each? You might say you “prefer” a conservative portfolio of something like 30/70, but is that really what’s objectively best for your situation? How would you know?

Ultimately, customizing an asset allocation is very difficult to do, unless we have a firm grip on what is best for each investor. Otherwise, like the big three firms in our investigation, we’re just guessing.

 

4. Other Investment Opportunities

You can invest in other investment vehicles, such as real estate, hedge funds, life insurance, and businesses.

This too is part of customization. If you personally desire real estate to be part of your overall portfolio, then for it to be customized to you, there must be real estate. But Fidelity, Vanguard, and Schwab do not offer any means for assisting you with real estate investment.

A multi-family office that exclusively serves investors with ultra high net worth, such as Pillar Wealth Management, does not shy away from including real estate, or other investment options, as part of your portfolio – if our approach determines such investments will deliver the best possible outcome for you.

 

Personalized Wealth Management

5. Retirement Account Distributions

Suppose you have a Roth IRA, a 401k, and a traditional IRA, all of which have seven or eight figures of value.

Which one or ones should you withdraw from first? How much from each? Should it change over time? For large retirement accounts, these decisions have enormous tax implications.

A customized investment portfolio must incorporate a plan for generating income from assets such as these. If all the plan does is deal with equities and bonds and projected returns, that’s not a fullycustomized investment plan, especially for someone with high net worth. That’s just one piece of the puzzle.

 

6. Tax Planning

Have an inheritance coming? This could be in the form of retirement accounts, a business, raw cash, or many other forms. What are the tax implications of each? They differ state to state, besides the federal policies. And as governments adjust laws, the consequences of the decisions you face will change over time.

Plus, based on the income you take out from your various accounts and assets, you may fall into different tax brackets.

So, tax bracket awareness, and how your position changes year after year along with changes to your income and its many possible sources – this too must be customized.

If someone makes just $100k per year as they near retirement, but they have $30 million tied up in various retirement accounts, they will need a very different personalized wealth management plan than someone making $400k per year but with $10 million in retirement accounts.

The younger you are, the more you can plan ahead for future scenarios such as these. This too should be customized.

 

7. When You Retire

Some people retire in their 40s. Others in their 50s or 60s, and some wait until their 70s.

This too must be customized. Someone retiring at 50 will need a very different investment and distribution plan than someone retiring at 65. All the other factors on this list will bring different stakes depending on when retirement happens.

And your advisor should have something to say about when you should think about retiring. The ultimate decision is of course up to you, but do you see how the advisor’s role here is to help you understand the consequences of whatever decision you make?

If all they do is create a customized money management plan with a 70/30 split and a variety of stock investments across various sectors to mitigate risk, but they don’t also create a plan for multiple retirement scenarios, then they aren’t really acting as a wealth manager. That’s just investment planning, and it’s again just one piece of the puzzle.

 

8. How Much You Set Aside

Lastly, for this list, you can also customize how much money you put in charitable trusts, trusts for family members, insurance, and other forms of giving and estate planning.

For anyone with ultra high net worth, this is a huge part of any truly personalized wealth management plan.

Why Most Firms Fail at True Customization

When most firms promise customization, they’re only talking about the basics. They will let you choose your own investments. Sometimes those are just among mutual funds and bond funds. Sometimes they might include individual stocks. Possibly private equity or hedge funds.

Most will also choose an asset allocation for you. But it’s based on flimsy assessments of your risk tolerance, and nothing quantifiable.

But Fidelity, Schwab, Vanguard, most other large firms, and many independent wealth management firms as well, will not truly customize many of the other items on this list, let alone the complete picture of your long term, comprehensive, time-adjusted investment portfolio.

Why?

Because frankly, it’s too difficult. It’s not their specialty. They’re specialty is the basics – investment options. And they’re very good at that. Pillar uses these large firms for the investment portions of many portfolios we develop for our ultra high net worth friends.

But that’s just one aspect of a personalized plan. Large firms are not equipped to deal with the rest of these critical issues.

They will farm you out to other experts in insurance, estate planning, tax planning, and real estate. Or, like Vanguard, they will tell you to go find those specialists yourself. But they do not interweave these elements into the plans they create for their customers. It’s just not their business model.

So, large firms are not avoiding the work that goes into 100% customization, but then they’ll deliver it if you twist their arm enough. They simply don’t offer it at all.

 

How Do We Determine Customization for Each Individual?

The unanswered question permeating this whole post is, how do we know, for each high net worth client, how to customize their entire investment portfolio for them, and how do we know our customized plan is the best possible option?

First, it all comes down to what’s important to you.

What you care about most in life determines the type of plan that we create for you. If you don’t have any kids, for example, then your estate plan will look very different than someone who has four kids. Probably. Some people with kids don’t want to leave hardly anything to them. They want them to work for it themselves.

You see – that one detail uncovers a vast array of choices, and that’s just one aspect of estate planning, which is just one piece of the overall portfolio plan. You see how deep this can go…

Second, to know if a plan is best, you must have an objective instrument for measuring the probability of success for every possible plan.

The big firms use tools such as Monte Carlo, which is an untrustworthy and misleading way to project the success rate of an investment plan. See why you can’t trust Monte Carlo. [link to blog 99]

Pillar Wealth Management has developed a far superior tool. It’s our proprietary, mathematical, historically-backed method for calculating the probability of success for every plan we create. And our system incorporates ALL the elements of customization, not just the investments.

If our model projects success for your plan at between 70% and 85%, you are in what we call the Comfort Zone, and that means you can rest securely, knowing you are set for life and that you will achieve all, not some, of your financial goals.

Because success looks different for each person, so must the plan. And thus, Pillar Wealth Management really does create 100% personalized wealth management plans.

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Authors

To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.

We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.

You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.

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