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Why We’d Turn Away Clients Worth Millions – Fiduciary Duty

Why We Turn Away Some Clients that Could Make Us Millions

What the Fiduciary Duty Means for Your Financial Serenity

Oaths. Vows. Commitments. Duties. Even in today’s world, these still have great power over behavior, when properly adhered to.

The fiduciary duty is not a simple calling. It is not just a checkbox you sign on a form as one of your services. It is not a perk. It is not an upsell. It is not a free bonus.

As a fiduciary wealth manager for high net worth and ultra-high net worth investors, Pillar Wealth Management take this calling so seriously that we will turn away clients who – by their own requests and preferences – would compel us to act in ways that go against what we consider their best interests.

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What’s shocking to us is how few of the other financial advisors out there – especially the big discount brokers and large banks – seem to care about this.

What you’re about to see is like a case study of someone we did not work with, and why.

High Net Worth Investor Has 76.9% of Wealth in One Stock

We talked with a high net worth investor who had $13 million in liquid assets – well above our required $5 million minimum.

The problem is, $10 million of that money is tied up in a single stock belonging to a major tech company. The stock is personal to this person, in part because she worked there, so she is very resistant to selling any of it.

This sort of emotional attachment that sometimes develops between stockholder and stock is fairly common. It’s the same reason why many professional money managers tend to struggle much more with selling at the right time, rather than buying at the right time.

It’s hard to let go.

Even when it’s in your best interests to do so.

So what is in this investor’s best interests? As a fiduciary wealth manager, it’s our job to first answer that question, and then develop a plan for achieving it. That is our duty to all our clients. And we take it seriously.

In this case, the answer is pretty simple. Having 76.9% of your wealth tied up in a single stock from a volatile and frequently disrupted industry is an extreme example of concentration risk. If this tech company were to fall out of favor – for whatever reason, be it a new competitor, changing regulations, shifting customer sentiments, pick your poison – and the stock lost half its value, this investor’s liquid net worth would plummet from $13 million down to $8 million, just like that.

Is there precedence for this? Most definitely.

Get Your Customized Wealth Management Analysis

Schedule a chat with CEO and co-founder Hutch Ashoo

The Risks of Concentrated Tech Stock Are Well-Documented

Here’s a famous example – the AOL Time Warner merger  in the early 2000s.

AOL was king of the internet. Yet, within a couple years of forming the largest merger in history, they were virtually wiped out. Eventually selling, years later, at more than a 75% loss. Ted Turner lost 80% of his $10 billion wealth in a very short amount of time as part of the fallout. This deal still holds the record for the most money lost in a single year, nearly $100 billion.

AOL is far from the only example of this, and that’s just in the tech industry. It can happen to nearly any business. Want to buy some Sears stock?

So, can a top tier tech company go belly up? Uh… yes.

Is it in your best interests to concentrate three fourths of your wealth in a single company? Uh… no.

As a fiduciary, it is therefore our duty to advise you of this. We are bound, we are compelled, to recommend that this stock be unwound, but not before consulting with a CPA. Why? Because saving this client on taxes is in her best interest.

Thus, in the performance of our fiduciary duty, we connected this person with a CPA to help her work through the unwinding process so the tax bite is minimized.

To add to the urgency, this individual has four kids and no living trust. Putting a living trust in place is an urgent need.

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As a fiduciary, we would strongly recommend that this process begin immediately.

And if you’re looking to find the right fiduciary financial advisor, one that puts your interests above his or her own, you’re encouraged to schedule a chat with Hutch Ashoo, CEO and Co-founder of Pillar Wealth Management. He can quickly assess whether your portfolio is risk heavy and give you a couple proven ideas on how to protect it, especially in these currently volatile markets.

The Discount Broker Approach

Now, let’s contrast our fiduciary wealth management approach with that of a highly respected discount broker. This same investor went to one such firm and got a very different set of recommendations.

There are two points to make here.

1. The discount broker came to the same conclusion about the stock.

Anyone who knows finance knows you shouldn’t have 76% of your wealth in a single stock. This brokerage firm agreed with us – unwind the stock. So far, we’re on the same page.

2. They recommended selling all the stock at once!

In other words, this nationally known, highly respected discount broker, which has commercials on television offering wealth management advice and services, with thousands of employees, recommended that this person blindly cash out without due consideration to taxes.

No mention of a CPA to the client and clueless to the fact the client doesn’t even have a living trust to protect their wealth. Why? Because they are trained to care only about Assets Under Management and to making profits for their shareholders!

Get Your Customized Wealth Management Analysis

Schedule a chat with CEO and co-founder Hutch Ashoo

Can We Help a Client Like This?

What you’ve just seen is one reason we conduct such a thorough Wealth Management Analysis before taking on any new client. In that meeting, issues like this one come to the surface.

If the potential client shows little interest in taking the advice we would recommend – as a wealth manager bound by the fiduciary commitment – we may decline their business. In this case, the investor would need to agree to start unwinding the tech stock.

We cannot, in good conscience, take on a client with such a risk-heavy portfolio. If that tech stock did go into freefall and she hadn’t sold any of it, this client would look to us for answers. What would we say? “We told you so”? That’s probably not going to fly. So, it’s better to go separate ways before that happens.

A fiduciary financial advisor, one who puts your interests above his own, is not for everyone. However, if you’re open to actionable advice from a seasoned, fiduciary financial advisor, you’re encouraged to schedule a chat with Hutch Ashoo, CEO and Co-founder of Pillar Wealth Management. He can quickly assess whether your portfolio is risk heavy and give you a couple proven ideas on how to protect it, especially in these currently volatile markets.

Why Are We Sharing this Story?

Because there’s a lot of financial advice being tossed at high net worth investors that is not in their best interests to follow.

It matters who you’re listening to, and what their motives are. Our motive is not just to take as many clients as possible.

Our motive is to help our clients maximize their performance, minimize their undue risk, and achieve financial serenity – for the rest of their lives and beyond.

If we aren’t able to do that for a potential client, and we can see the writing on the wall before signing them up, we will send their business elsewhere.

Get Your Customized Wealth Management Analysis

Schedule a chat with CEO and co-founder Hutch Ashoo

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