Wealth Management for High Net Worth Individuals

In wealth management for high-net-worth individuals, it is crucial to address the potential drawbacks of relying solely on large firms. While these firms may boast billions in assets under management, high-net-worth investors need to recognize that their portfolio’s success cannot solely rely on the stability of these companies. As the stakes are significantly higher, making assumptions about the performance of such firms can be detrimental. In this article, we will explore the drawbacks that high-net-worth individuals may encounter when entrusting their wealth to large wealth management companies and discuss strategies to overcome them.

STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION

7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning

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How To Find Your GO-TO High Net Worth Financial Planner

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Multi-Family Office For Ultra-High Net Worth Families

Founder & Managing Member Pillar Wealth Management

Table of Contents

• Lack of Personalized Attention
• Restricted Access to Top Talent
• Potential Conflicts of Interest
• Complexity and Lack of Agility
• Navigating the Wealth Management Landscape
• The Benefits of Private Independent Wealth Management
• The Advantage of Specialized Firms
• Wealth Management for High Net Worth Individuals: The Importance of Expertise
• Ultra Wealthy Individuals: 3 Distinct Categories
• Assets Under Management (AUM) Is a Misleading Indicator
• Large Firms Have Fewer Specialists for High Net Worth Individuals
• Looking for Wealth Management Tailored to High Net Worth Individuals?

Lack of Personalized Attention

One of the primary drawbacks of working with large wealth management firms is the potential need for personalized attention. These firms often have a vast client base, making it challenging to provide individualized strategies and tailored solutions to each client. Consequently, investors may have generic investment plans that may not align with their specific financial goals and risk tolerance. To overcome this, high-net-worth individuals should consider seeking out boutique wealth management firms that prioritize personalized attention and have a client-focused approach.

Restricted Access to Top Talent

While large wealth management firms may have extensive resources, it doesn’t necessarily translate into having access to the best talent in the industry. These firms often have rigid hierarchies and bureaucratic structures that limit the involvement of top-notch professionals in managing individual portfolios. In contrast, boutique firms are known for their ability to attract and retain top talent, providing clients with direct access to seasoned experts who can offer specialized guidance and expertise tailored to their unique needs.

Potential Conflicts of Interest

In some cases, larger wealth management firms may have affiliated businesses or partnerships that can create conflicts of interest. These conflicts can arise when the firm's recommendations are influenced by their relationships with particular financial products or services rather than solely focused on the client's best interests. High-net-worth individuals should prioritize working with independent wealth management firms with a fiduciary duty to act in their clients’ best interests, ensuring unbiased advice and recommendations.

Complexity and Lack of Agility

Large wealth management firms often need help adapting quickly to changing market conditions or implementing innovative strategies. Their size and organizational structure can hinder agility, making it challenging to respond swiftly to market shifts or take advantage of emerging investment opportunities. On the other hand, boutique firms are known for their flexibility and skill, allowing them to navigate complex markets efficiently and tailor investment strategies to seize profitable opportunities promptly.

Navigating the Wealth Management Landscape

To mitigate the drawbacks of relying solely on large wealth management firms, high-net-worth individuals should consider adopting a hybrid approach. This involves leveraging the strengths of boutique firms, such as personalized attention, access to top talent, and agility, while still benefiting from the resources and scale of larger firms. By working with a carefully selected team of experts who understand their unique financial circumstances and goals, high-net-worth individuals can ensure a holistic and tailored approach to wealth management.

The Benefits of Private Independent Wealth Management

Regarding wealth management for high-net-worth individuals, the impact of relying on large ultra-high-net-worth wealth management firms on your growth potential cannot be overlooked, especially when it comes to avoidable taxes. According to Forbes, even if a wealth manager achieves impressive gross returns of 15%, the intricate web of tax regulations can significantly diminish that number to a mere 3% after accounting for total management fees, fund expenses, and taxes.

Such revelations can be pretty disheartening.

The costs and taxes involved can potentially erode performance gains in much larger proportions than one might expect. Rather than merely nibbling away at your profits, these expenses and taxes could be dividing them in half. To truly comprehend their advantage, let's delve deeper into the benefits offered by private independent wealth management firms as compared to their larger public counterparts.

The Advantage of Specialized Firms

When it comes to tax depreciation, are large ultra-high-net-worth wealth management firms superior to their specialized counterparts? Surprisingly, they may need to catch up in this respect, partly due to their extensive staff numbers (for instance, Morgan Stanley boasts a staggering 15,500 financial and wealth managers).

Consider this:

The probability is low that every one of these wealth managers operates at the exceptional level required to stay abreast of the ever-changing tax strategies necessary for maximizing growth and minimizing losses for each client. This is particularly true for the considerably more intricate portfolios of high-net-worth investors.

In reality, only a fraction of these advisors possesses the expertise to cater to investors like you. However, due to their typically larger caseloads, they often need more time to dedicate to the unique circumstances faced by each ultra-high-net-worth client.

Are you comfortable being the odd one out?

With such a large staff of wealth managers, it's akin to playing roulette with your portfolio.

Imagine the wheel spinning, and...

Which one of the firm’s wealth managers will you end up with?

Then, after a few years, the wheel spins again when your manager departs or receives a promotion. Consequently, you're likely to have a different person supporting you throughout the decades you need to rely on their expertise. Instead, you'll find yourself being shuffled around amidst the inevitable turnover, reorganizations, and personnel changes that frequently occur at large firms.

The bottom line is this:

At a sizeable ultra-high-net-worth wealth management firm, you face a greater risk of incurring unnecessary costs and taxes, potentially resulting in financial losses. On the other hand, choosing a smaller firm specializing in ultra-high-net-worth wealth management significantly reduces these risks.

Wealth Management for High Net Worth Individuals: The Importance of Expertise

When it comes to wealth management for high-net-worth individuals, the abundance of wealth managers can dilute the expertise required for this specialized field. Consider this:

True expertise cannot be found throughout an entire industry; it is inherently associated with an elite group. If you delve deeper, you will always discover high-performers who surpass the masses within a specific industry. This holds in the realm of ultra-high-net-worth wealth management firms as well.

At the pinnacle, you'll find exceptional performers and industry savants who transcend their field. Continuously adapting to the ever-evolving global and market landscape, they define and redefine ultra-high net worth wealth management.

These are the individuals you seek.

Below them, a larger group of less experienced wealth managers exists as followers. Their modus operandi is straightforward: they adhere to instructions, tick off boxes, and follow pre-established protocols set by the elite performers.

You might come across a handful of elite managers within the vast global staff of major ultra-high-net-worth wealth management firms. However, with tens of thousands of wealth managers in such firms, your chances of finding the true gem are slim.

Fortunately, there's a far better alternative.

Specialized ultra-high-net-worth wealth management firms typically have owners or partners who also serve as experts. They are directly involved with each client, avoiding delegation to subordinates or mere "employee advisors."

In smaller, specialized, elite firms focusing on ultra-high-net-worth wealth management, owners/advisors forge personal and intimate connections with investors. They know their clients by name, including their children and pets. Furthermore, they possess comprehensive knowledge about their client's business situations, mortgages, investment performance, and short- and long-term life goals.

This level of involvement enables an essential service:

Crafting a personalized plan for each investor, deviating from conventional approaches and tailored precisely to their unique needs.

In contrast, sizeable ultra-high-net-worth wealth management firms often produce investment plans that bear striking resemblances to one another. Why? Because they lack the customized attention found in specialized firms. Due to constant growth demands, these large firms often need to "hire down," increasing the likelihood of inexperienced "employee advisors" overseeing your ultra-high-net-worth portfolio. It's a matter of simple probability.

Ensuring expertise and personalized attention is paramount for wealth management for high-net-worth individuals. Opting for specialized firms that prioritize individualized service and close client relationships safeguards your financial interests, offering peace of mind in an ever-changing financial landscape.

Ultra Wealthy Individuals: 3 Distinct Categories

Wealth management for high-net-worth individuals encompasses catering to three distinct categories of individuals with varying levels of wealth.

The first category consists of high-net-worth individuals with assets totaling $1 million. They can avail themselves of the services a wealth manager offers to optimize their financial resources.

The second category comprises very-high-net-worth individuals with assets ranging from $5 million to $30 million. These individuals can significantly benefit from the expertise and guidance a wealth manager provides to manage their substantial wealth effectively.

The final category is ultra-high-net-worth individuals who boast assets exceeding $30 million. These individuals, with their significant wealth, require specialized attention and tailored wealth management strategies to preserve and grow their fortunes.

(Calculate your net worth by subtracting your total debts from the combined value of your assets.)

Assets Under Management (AUM) Is a Misleading Indicator

Charles Schwab's Investor Services, the wealth management division catering to high-net-worth individuals, experienced a significant increase of 14.6% in net revenues from 2016 to 2017. In contrast, Wells Fargo's net revenues grew by 4.9% during the same period.

Although this data may seem outdated, it serves a purpose:

Did Schwab outperform Wells Fargo in that particular year?

Indeed, they did, but not necessarily in the way you might assume. According to Investopedia, the revenue growth was primarily driven by "increases in asset management and administration fees."

In other words, they generated more income, but that doesn't directly translate to your financial gains.

Merely examining revenue growth, income growth, assets under management, and other indicators at various firms specializing in wealth management for high-net-worth individuals fails to provide the crucial insights you genuinely need.

For a comprehensive analysis of the seven critical warning signs to consider when selecting an advisor at a firm specializing in wealth management for high-net-worth individuals, refer to The seven secrets to Nigh Net Worth Investment Management, Estate, Tax, and Financial Planning.

We firmly believe in this straightforward truth:

Size alone does not guarantee the best outcome for you.

Revenue growth alone fails to paint the complete picture because it does not reveal the extent to which fees, taxes, and other costs their investors bear contribute to the overall profitability.

To put it another way:

Revenue growth has little correlation with portfolio growth for clients.

Are you in need of a wealth manager for higher wealth?

As your wealth increases, the likelihood of requiring the services of a wealth manager also rises. Your financial circumstances become more intricate, characterized by more extensive and diverse assets and investments. You may also possess a business, further complicating your tax situation as your wealth accumulates.

Large Firms Have Fewer Specialists for High Net Worth Individuals

One-stop shopping has gained in popularity in large retail stores. However, regarding wealth management for high-net-worth individuals, there are better approaches than one-stop investing.

Why?

Because as a person with a high net worth, your requirements for additional services surpass those of most individuals.

You don't simply need any estate planning attorney; you need one who has extensive experience in high-net-worth estate administration and has witnessed numerous scenarios unfold.

You don't just need any mortgage and real estate advisor; you need someone who has dealt with properties owned by celebrities and moguls.

You don't just need a tax accountant; you need an expert witness in high-profile cases, someone the courts recognize. It would help if you had someone who declines court requests because they are too occupied with more essential clients—such as you.

The point is these top-tier, specialized experts—the ones in a league of their own—do not work for large banks. They run their specialized firms. Why?

Because they are specialists.

You probably won't find an elite estate planning specialist at the biggest banks.

While big banks and extensive wealth management firms may offer various financial services as part of their high-net-worth wealth management packages, they may not possess the best-of-the-best experts in those respective fields.

You will only find the best team by searching for highly experienced and specialized experts who run their elite-level, smaller firms. This applies to estate lawyers, accountants, and wealth managers.

Looking for Wealth Management Tailored to High Net Worth Individuals?

When you realize that the intricacies of wealth management can be overwhelming and you lack the time or expertise to handle them alone, it's time to engage the services of a specialized wealth manager or high-net-worth advisor. Apart from overseeing budgeting, retirement planning, investments, and asset management, an exceptional wealth manager should possess expertise in tax management, estate planning, business succession, and philanthropic endeavors.

A reliable method to identify elite-level managers is examining how they define and achieve performance goals.

At Pillar Wealth Management, you'll witness the essence of elite-level services. If you have only dealt with central banks and extensive wealth management firms in the past, our approach will leave you amazed.

Discover what you've been missing.

Consult with Pillar's team of specialized wealth managers.

Frequently Asked Questions

What are some unique considerations in wealth management for high net worth individuals?

High-net-worth wealth management typically focuses on asset diversification, generational wealth transition, legacy planning, business succession, and tax management.

How is asset protection addressed in wealth management for high net worth individuals?

Asset protection includes having a highly diversified investment portfolio, as well as adequate cash on hand, and utilizing charitable giving and legacy planning for tax minimizaiton.

How does wealth management for high net worth individuals facilitate long-term financial goals?

High-net-worth wealth management includes strategies for growing and maintaining wealth, ensuring a legacy, and "giving back" through philanthropy.

Can wealth management for high net worth individuals help in business succession planning?

A high-net-worth financial planner or advisor can create a plan for business succession, with the help of other professionals such as an attorney and accountant.

What is the role of financial advisors in wealth management for high net worth individuals?

In wealth management, a financial advisor has the training and expertise needed to help affluent individuals achieve their financial goals, such as growing their wealth and creating a legacy.