Case Study Reveals What the Fiduciary Duty Means for Your Financial Serenity
Just like oaths,vows,and commitments, the fiduciary duty is not a trite calling, but has great power over behavior, when properly adhered to – even in today’s world.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
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The fiduciary duty 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.
This article is about one thing – how seriously Pillar Wealth Management takes our fiduciary duty. We take it so seriously that, as you’re about to see, we will turn clients away if we believe taking on that client would put at risk our ability to adhere to the fiduciary duty.
Our expert wealth managers serve high and ultra high net worth investors who have $5 million to $500 million in liquid net worth.When you become one of our clients, you expect and deserve the absolute best financial planning and portfolio management.Click here to schedule a free call with one of our founders, Hutch Ashoo and Chris Snyder.
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The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Millionwill open your eyes to what is possible if you’re looking for ways to protect your wealth, minimize estate taxes, and secure your future generations.
Table of Contents
As a fiduciary wealth manager for high net worth and ultra-high net worth investors, Pillar Wealth Management takes the fiduciary duty 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.
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 a case study of someone we did not work with, and why.
High Net Worth Investor Has 76.9% of Wealth in One Stock
A high net worth investor called our office, and she had $13 million in liquid assets – well above our required $5 million minimum.
We soon learned that $10 million of that money was tied up in a single stock belonging to a major tech company. The stock was personal to this person, in part because she worked there, so she was very resistant to selling any of it.
This 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 was 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 fiduciary duty to all our clients.
In this case, the answer was 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 – 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.
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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?
The point is, can a top tier tech company go belly up? Yes.
Is it in your best interests to concentrate three fourths of your wealth in a single company? No.
As part of our fiduciary duty, we must advise any client of who finds themselves in a similar situation of the risks they face. We are bound, we are compelled, to recommend that this stock be unwound. But, you have to do it right, and that includes consulting with a CPA. Why? Because saving money on taxeswhile unwinding the stock is also in your best interests.
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 was 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.
As a fiduciary, we would strongly recommend that this process begin immediately.
Do you see how it is our fiduciary duty guiding the advice we’re giving this potential client, even before she is a client?
If you’re looking to find the right financial advisor who upholds the fiduciary standard, 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 with No Fiduciary Duty
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.
- 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.
- 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 her wealth. Why? Because they are trained to care only about Assets Under Management and to making profits for their shareholders!
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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 duty – we may decline their business. In this case, the investor would need to agree to start unwinding the tech stock before we would work with her.
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 financial advisorwho puts your interests above his own according to the fiduciary duty, 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.
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 simplyto 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.
That’s how we interpret and apply the fiduciary duty to our clients. If we aren’t able to live up to that for a potential client, and we can see the writing on the wall before signing them up, we will send their business elsewhere.
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