Let’s start with the fundamentals — the five indispensable elements you must insist on from any high-net-worth advisor. Then, we’ll recount a brief tale of a wealthy couple who were drastically impacted by the traditional investment strategies and philosophies of Wall Street, as implemented by their previous advisor.
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Table of Contents
- Here are the 5 Essential Qualities of a High-Net-Worth Financial Advisor:
- A True Story of a High-Net-Worth Couple
- Guide to Hiring an Ultra High Net Worth Financial Advisor
- Finding a High-Net-Worth Financial Advisor
Here are the 5 Essential Qualities of a High-Net-Worth Financial Advisor:
- Possessing a proven history of leveraging market growth and reducing losses during market downturns
- Using quarterly stress tests to assess how well your life goals are progressing
- Aiming to minimize your taxes and expenses year after year
- Utilizing performance as merely one indicator of progress
- Operating as a fiduciary, ensuring impartiality and independence
What follows is a perspective that profoundly deviates from the standard Wall Street notion of staking all your finances on future market performance. Many advisors, even independent fiduciaries, cannot provide the insights we’re about to explore. Mostly, they’re repackaging familiar products and strategies and leaning heavily on impactful marketing or networking. They lack a plan for curtailing your losses during economic downturns. We saw this happen during the dot-com recession in 2000, again in 2008, and most recently during the 2020 pandemic.
In this guide, you will learn how these five tenets have led to the formation of our uniquely innovative and exclusive approach to investment management, honed over the last 30 years, which cannot be matched by most advisors, even independent fiduciaries. You’ll learn the significance of performing a ‘stress test’ on your plan and the confidence this test gives about the longevity of your money.
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You will realize how we can potentially save you hundreds of thousands, if not millions, in taxes and expenses (point 3 above), even before your investments start to yield returns. Unfortunately, these costs are rarely discussed.
You will acquire knowledge on how to amplify your returns, limit risk, and safeguard your lifestyle, free from concerns about the future.
You will grasp the concept of a fiduciary and understand why it's paramount to opt for an advisor who strictly follows this professional ethic.
Above all, you'll appreciate why a personalized financial plan is the gateway to attaining the lifestyle, investment performance, and financial peace you seek. We don't focus on your desired rate of return or your risk tolerance, which is unnecessary when you engage with our specialized approach to creating tailor-made investment strategies. You’re about to discover why much of the advice disseminated by Wall Street, large banks, investment companies, and discount brokers over the years should be dismissed. This book is about you, your future, the lifestyle you aspire to, and our unique methodology, built upon over 60 years of combined experience, designed to help you achieve that life with certainty and tranquillity.
A True Story of a High-Net-Worth Couple
Jen and Garrett were long-term employees of tech companies in Silicon Valley, around San Francisco. They decided to retire early, eager to embrace the next phase of their lives. Despite the high cost of living in the Bay Area, they had managed to accumulate approximately $5 million in liquid investable assets.
When we inquired about their financial status, retirement goals, financial plans, and the income they would need to sustain their lifestyle, Garrett estimated their assets to be worth $5 million.
Jen, however, reacted peculiarly to this figure. Upon probing deeper, we uncovered a harsh reality.
Prior to the dotcom bust, their liquid assets were worth $32 million. Now, their net worth had dwindled to $5 million. Their portfolio had plummeted to a mere 16% of its pre-2000 value. This revelation felt like a heavy blow. The atmosphere turned somber as Jen was reminded of the extent of their losses.
Their conversations about retirement plans and financial goals were abruptly replaced with simpler, yet more pressing queries:
Will we survive this?
Do we have sufficient funds?
Their previous advisor had allocated most of their wealth into risky, non-liquid investments without sufficient diversification. He had failed to formulate a tailored investment strategy that could secure their future and alleviate their financial anxieties.
They placed their trust in him, and he let them down. Consequently, they endured a far greater loss than they should have. Regrettably, the answer to their second question was, “No,” which meant Garrett had to rejoin the workforce.
Understandably, they dismissed their advisor, who was associated with a prominent Wall Street firm. They entrusted us with their investment planning once they realized how our proprietary method of developing completely customized plans could address their needs and help them regain the financial peace they had lost.
However, Jen and Garrett's situation is not an isolated incident. The same risks and uncertainties they encountered could also apply to you. Their question probably mirrors yours: “Will my advisor ensure market returns without jeopardizing my entire portfolio?” Let's be candid.
No one can foresee the future.
No one possesses a crystal ball.
Life will unfold as it will. Market conditions may not align with your expectations. Changes are inevitable, and many global and personal events are beyond your control. The right combination of such unforeseen calamities occurring at the wrong time can unravel anyone's plans, regardless of the billions in their portfolio.
No one is safe.
No one is exempt.
Over the years, we have witnessed numerous advisors utterly fail to uphold their clients' trust and confidence due to inexperience and by succumbing to greed and pride in their supposed investment abilities. Their lack of experience and their reliance on their firms for investment planning (indeed, most advisors simply aggregate ultra-wealthy clients' funds into predetermined firm-led portfolios) can result in colossal losses for their clients during financial downturns, shattering their clients' dreams.
The harsh truth is that the 60% collapse of the dotcom stock market in 2000 took approximately 13 years to fully recover, largely due to a second, and in many respects more severe, recession in 2008 that eradicated all the gains that had been achieved since 2001.
Consider this: regardless of the size of your portfolio, losing 40, 50, or 60% of it is simply unacceptable! Only a personalized approach to investment planning can safeguard you while still delivering the growth and long-term financial tranquility you seek.
Some of Wall Street's most esteemed firms, major banks, and many notable financial advisors continue to sell their clients what essentially equates to uncontrolled risks, similar to what Jen and Garrett experienced. These advisors instill in their clients the belief that they can maneuver around future uncertainties. However, the reality is that they prioritize their shareholders and their own financial interests over yours. This is because they are not fiduciaries.
So, what is their strategy for your wealth?
Their strategy is to gamble with your money while convincing you that it serves your best interests. They certainly won't put it in those words. Instead, they'll weave a captivating narrative about the excellence of a certain strategy or philosophy. Yet, when the next financial crisis strikes—it's YOUR portfolio that suffers!
This is about your life, your family, your legacy—and they appear willing to risk it all.
And after the next market crash, they will justify the loss of your wealth using terms like "unpredictable," "unforeseen," and "unprecedented." Then, they'll advise you to simply "ride it out" and not panic.
Such rhetoric is merely their way of excusing their utter failure to safeguard your wealth. If your current advisor used such language during the last market downturn, it's time for you to promptly withdraw your funds and head in a different direction.
Why? Because nothing is truly unprecedented when it comes to markets. Global, market, and life events recur repeatedly. The only thing that changes is the labels—COVID-19, terrorist attacks, recessions, and conflict in the Middle East—they all have the same impact when it comes to finances.
We acknowledge that markets are volatile and will always be prone to losses. The question then becomes, what can your advisor do to protect your wealth in advance of when the next crisis strikes, and the ones to follow?
The encouraging news is, Pillar Wealth Management's unique process DOES indeed anticipate such supposedly unpredictable events, while simultaneously safeguarding the wealth you've tirelessly amassed.
Guide to Hiring an Ultra High Net Worth Financial Advisor
When in the process of identifying potential advisors to act on behalf of your family, you should ask pertinent questions, rather than simply gathering basic contact details, biographical information, education, and credentials. You need an advisor who is knowledgeable and skilled at managing finances for individuals with your level of net worth.
One of the foremost questions you need to ask is: “Does the advisor have any conflicts of interest?” Conflicts of interest can materialize in various ways. For instance, does the advisor earn commissions on products recommended or sold? Do they receive referral fees? Does the advisor manage the investment(s) they are advocating? These factors may all indicate potential conflicts of interest. In an ideal world, you want to steer clear of these entirely.
Your preference should be an investment advisor who operates as a fiduciary. A fiduciary is mandated to disclose conflicts and to always serve you impartially. Many who label themselves as financial advisors are merely required to meet a "suitability" standard. Advising based on whether an investment is suitable does not equate to acting in your best interest.
Numerous leading financial institutions are infamous for selling both ends of a transaction and profiting from each side. It's difficult to perceive how such a practice aligns with the client's best interests. Nonetheless, that's precisely what some broker-dealers do. They buy and sell, generating a profit, be it from the commission or the spread between purchase and sale prices. For the client, this represents a conflict of interest. Major broker-dealers earn money on the spread between purchase and sale prices. This is particularly prevalent in municipal bond purchases. Remember, broker-dealers aren’t providing their services free of charge!
Non-commissioned fiduciary advisors might advise you to purchase insurance, but they would not receive any commissions or indirect remuneration. They aren't recommending a purchase to boost their earnings, but rather because it's the appropriate action and in your best interest. With the advisor's decision-making uninfluenced by commissions, they may be able to find cost-effective policies, saving you fees upon purchase and/or redemption. The advisor's only objective should invariably be your best interests, not supporting the sales and marketing team or lining the insurance company's coffers.
Even advisors operating as fiduciaries may be earning commissions. Therefore, always delve a little deeper and don't hesitate to ask: “Is the advisor receiving any remuneration other than his or her service fee?” It is crucial to remain alert to potential conflicts of interest at all times. While you may not be able to eradicate all conflicts, astute investors will always remain conscious of their existence.
In addition, you must fully understand the advisor's fees and fee structure. Fees can range from as low as 0.25 percent if you've invested half a billion or more. On the other hand, if you are investing with a money manager, the fee could reach as high as 2 percent plus 20 percent of the profit. It all depends on the services the advisor is providing.
Finding a High-Net-Worth Financial Advisor
Locating a high-net-worth financial advisor may pose a challenge, but it's not an impossible task. Someone in your circle might have an advisor assisting them in achieving their financial goals, so you can seek recommendations from your network.
There is an abundance of online resources to assist you in finding a high-net-worth financial advisor. Many financial management firms offer a website search feature to locate an advisor. You need an advisor with the expertise to manage the complex financial affairs of a high-net-worth individual, so it's vital that any advisor you consider working with has the requisite background and experience to help you accomplish your financial goals.
Frequently Asked Questions
High-net-worth financial advisors work with individuals with at least $1 million in liquid assets, whereas other advisors offer financial services for anyone needing help with managing their finances.
Financial advisors work with individuals and families, offering services such as controlling cash flow and expenses, debt management, investing, retirement planning, and tax and estate planning.
The key to effective investment management is asset diversification, focused on a broad range of investment options in a variety of asset classes, which mitigates the effects of market volatility,
A high-net-worth financial advisor provides investment management services to wealthy individuals, including recommending alternative investments such as hedge funds and venture capital funds.
A high-net-worth financial advisor has the expertise required to ensure that their clients can preserve and grow their wealth, providing financial security today and through retirement.
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