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Is Your Financial Advisor Jeopardizing Your Financial Security?

Financial security is desired by pretty much everyone, and yet very few ever experience and live out the true feeling and certainty of it – even those with high and ultra high net worth.

And while it’s very smart to get a wealth manager or financial advisor, as you’re about to see, getting the wrong one will do the opposite of what you desire. The wrong advisor will damage, not help, your long term financial security. This is why families looking to invest between $5 million and $500 million should download this ultimate guide to financial advice by clicking here. 

is schwab a fiduciary


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.

To find the best possible financial advisor for investors with over $10 million, get our free guide,

The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $10 Million – $500 Million Liquid Assets. To see what Pillar Wealth Management can do to help you achieve financial security, set up a free introductory call here, or just keep reading.

Every time the economy performs well for a long stretch, many Americans with high net worth have been lulled into thinking that times will always be good and that their financial security is strong. Polling data reveals that most Americans persist in believing they will have more money in the future.

For high net worth and ultra-high net worth investors like you, this false sense of financial security during good times is compounded by the fact that you do actually have a large amount of money saved.

So when your financial advisor convinces you (not through some sales pitch, but instead through the unfortunate erroneous beliefs they have) how you “can’t lose” or that “you are protected to the downside” with a particular investment approach, you’re likely to believe them, especially if you’re already doing well.

Don’t be misled. Times will not always be good. There is always a next crash coming. And when those crashes come, investors with out-of-balance portfolios will lose their financial security. And their loss will be much bigger than they or their advisor intended.

For ultra-high net worth retirees, this problem is particularly severe, because you can lose a sizable portion of your hard-earned savings and not have time to gain back the financial security they were providing. This forces you to downsize your retirement plans.

As another writer puts it,  “If we don’t calculate the income and savings we need based on the values and lifestyle we want, that’s what can lead to a false sense of security. A big pot of money is just that – a big pot of money.”

Your values and lifestyle determine how much you spend. And they also therefore must determine how you invest. If you lose a huge percentage of your wealth in a market crash after you retire and you’re no longer earning income, then your lifestyle plans will have to be scaled down permanently. That big pot of money suddenly becomes a mid-size pot.

So how should you be investing so as to preserve your wealth and have true financial security?(See 14 ways to preserve your wealth).

Here’s a story about how so many financial advisors mislead their clients and offer terrible advice about financial security.

Advisor’s Terrible Advice a Prelude to Financial Loss (based on a real story)

A particular business owner sold his business after a successful career, and reaped a few hundred million windfall to live off during retirement. That’s a good day. The question though is, what do you do with that windfall?

It’s not so different than winning the lottery and taking a lump sum award. How do you wisely manage that so you preserve your financial security throughout your retirement? Need Help Planning a Business Sale? Use Our Business Exit Strategy Checklist

This business owner’s financial advisors recommended – strongly and repeatedly – that he allocate his windfall in a 70% stock, 30% bond portfolio. We cannot tell you how many financial advisors we have seen recommending this exact same allocation. It’s like they all learn it in school and just parrot it as standard procedure for all their clients.

Apparently, since everyone else is doing it, it must be the right approach. As a result, they give their clients a false sense of financial security, and lead them to believe they will gain in good times, and hold strong in bad times. A 70/30 split is almost guaranteed to cost you a fortune during the next crash.

Market Data Reality

Historical market data from Sept 1999 through Sept 2019 reveals that a 70/30 split would have suffered a 39.5% loss at its lowest point. And remember – that period of time covers two recessions, not one. So the other recession would have led to another huge loss, just not quite as large.

Two huge losses in a twenty year period. What if you retired in 1999 with $200,000,000 from a business sale? That 40% loss brings you down to $120 million. Utterly crazy – you just lost $80 million.

Again – this is real market data. This is how the market has performed the last twenty years. Now, if you retired in 2010, you’ve had a good ten year run. But that’s the point – no one knows when the next crash will come.

If it comes two years after you retire, and you’re invested 70% stocks, you’re in big trouble. No matter how much money you have, you will soon have a lot less. Further examination of the data reveals an even more costly reality.

During that 20-year period, if you were invested in a 70/30 split, you would have lost money for 517 days. And after that, you would have spent a whopping 667 days recovering from those losses. That’s nearly two years just to get back to where you were before the crash!

Likely ignorant of this data – which is there for all to see – these advisors offered a 60% stock and 40% bond allocation as another viable option. But is it any better? During the same 20-year period, a 60/40 allocation would have experienced 517 days of losses and 603 days of recovery, just to get back to where you started.

And at its lowest point, you would have lost 33.8%. A little better. Now, you’ve only lost $67 million. Break out the champagne.

Their Worst Piece of Advice

Facing the prospect of losing a mountain of money in the next crash, this former business owner’s advisors have convinced him that they can manage his money successfully even through the next crash. They have led him to believe he won’t lose that much money with their approach.

After hitting the iceberg, when the architect of the Titanic in James Cameron’s film hears the common wisdom of the day that this ship can’t sink, he replies, “It’s made of iron, sir. I assure you, she can.”

If the market crashes, no one with a 70/30 or 60/40 split will escape unscathed. It’s a mathematical certainty. No advisor is so ‘smart’ that they can outwit the market during those times. And this is why people panic when markets crash.

Because they have been misled by their advisors who expended much effort convincing them that their investment plan was sound and would hold up no matter what the market does. They have a false sense of financial security.

And when the market goes down as it most certainly will, the ‘common wisdom’ preached by nearly every advisor is to hold long term and ‘stay the course.’ Again, for a 30-year old rising business star living in San Francisco or Palo Alto, that advice might be okay.

But for an ultra-high net worth retiree in Los Altos who has just sold a business, exited a career, and simplified their life? They lose big, and they may never gain their financial security back in time.

Much Better Advice

Too many financial advisors overestimate their ability to craft investment plans that provide true financial security. Much better advice would be this: Be careful what you don’t know.

You’ll hear some people talk about certain stocks being safer than others. Get dividend stocks, or bank stocks, or value stocks, or utility stocks for their so called safety (we hope you aren’t holding PG&E), or best of all, blue chip stocks.

None of it matters. In a market crash, they all lose money, including blue chips which have been known to drop 60%.There is no safe haven in stocks when the market collapses.

And even in good times, stocks are volatile, subjected to all sorts of economic forces and changing times. You simply don’t know what is going to happen. And neither does your advisor.

The question then becomes – is it even possible to create an investment plan that doesn’t provide a false sense of financial security? Is there any way to achieve what we at Pillar call true financial serenity?

How to Achieve True Financial Security

Pillar uses a very different approach, one that balances your risk while maximizing performance, minimizes your costs, and protects your long term financial security. That may sound similar to the advisor’s promise about the 70/30 split.

The difference is, our approach actually does what it promises for ultra-high net worth investors who don’t want to lose millions in the next crash. Our investment planning process involves much more than just dividing money into percentages of stocks and bonds and hoping it gets you through your retirement no matter what’s happening in the world.

Among other things, Pillar’s portfolio management process enables you to:

  • Forecast your long term portfolio performance based on historical market data dating back to the 1920s – this is HUGE… ask for more details when you call
  • Make immediate adjustmentsto your plan – if necessary – when a major economic shift happens
  • Determine the security of your portfolio, even 30 or 40 years out
  • Adjust your short and long term goals in response to world events
  • Work towards eliminating worryabout the future

Our system for achieving financial security for ultra high net worth investors is customized to your exact financial and life situation. It hinges on historical market data.

Utilizing Real Historical Market Data

Historical data, dating back to the 1920s, has shown us how markets have responded to natural disasters, recessions, depressions, wars, political upheaval, civil unrest, technological changes, and all the other things that affect the stock market.

Pillar Wealth Management has developed a process that simulates similar types of events and uses real historical market data to project how your portfolio will perform in those simulations. Make sense? Read that sentence again if you need to, because it’s very important to understanding how you can achieve true financial security through Pillar Wealth Management.

Before we go any further, we must state that neither we nor any guru, company, or manager can see or predict the future. So, the question becomes, what’s the best path forward based on everything we know now?

For example, if a tsunami flattens a coastline, such as what happened in Indonesia a couple decades ago, that could affect various national economies, including ours. Now, what if a tsunami hits during a recession? This could be what’s known as a ‘black swan’ event.

We have 1000 simulations, some similar to this one, and we use historical market data to project how your portfolio would perform if those events were to actually happen.

Again, our approach is based on real data. Other advisors are guessing. Hoping the market doesn’t ruin all their best laid plans. We’re not guessing. We’re using history to show us – as best as can possibly be known – how a particular investment plan will hold up when times get tough in the economy and market.

That’s the best possible path toward a lifetime of worry-free financial security.

Why one thousand simulations? 

Because running just one simulation wouldn’t yield valuable data. But with a thousand of them, if your portfolio holds steady in the vast majority of these, you can now be confident that your plan will in fact continue to perform strongly, even in the face of economic slowdowns.

Do you see how different this is from an advisor just promising you he’s smart enough to manage your money no matter what happens in the world? We don’t claim that. We are not smart enough to do that. No one is.But we are aware of many who claim they are, and worse yet, they convince their clients that they are!

What we can do is test your plan against 1000 simulations that are based upon real market behavior during real historical events, going back about 100 years. And with that information, we can see how well your plan holds up and chart your path to lifelong financial security. And if it doesn’t hold up between 750 and 900 of those simulations, we go back and adjust the plan until it does.

The plan isn’t driven by our cleverness, or special insights, or secret knowledge that you just have to trust that we really have (which we don’t – no one does). It’s driven by data from history, and by a system that tells you that in 75 – 90% of high-stress scenarios, your portfolio stays healthy.

And that is how you achieve true financial security. If you want to see how your portfolio holds up against the 1000 tests, schedule a quick call with us.