As you accumulate more assets and your investments grow more complex, there can come a time when you need to consider if it makes better sense to hire a private wealth advisor to manage your life savings.
Many high-net-worth individuals and families turn to fiduciary financial advisors to help them pursue their financial goals and aspirations. They want a team of financial professionals who have weathered through all types of market cycles and have the skills and expertise to effectively manage their retirement savings as well as develop comprehensive wealth legacy plans.
This article answers the following questions:
- Why do HNW families and individuals need a wealth advisor?
- What is the difference between a fiduciary and a non-fiduciary?
- Can an advisor’s compensation model affect your portfolio’s appreciation?
- What are the benefits of working with a fee-based financial fiduciary advisor?
- When is it important to ask about an advisor’s investment strategy?
- Why investment costs matter to your retirement planning
- Do I need a multi-generational wealth plan to protect your family when I’m no longer here?
As you accumulate substantial assets over time, you want to ensure that your diligent savings efforts are nurtured by a financial professional who is held to a higher level of standards when it comes to managing your money.
Fiduciary financial advisors make investment decisions with your best interests in mind.
A fiduciary advisor has an ethical obligation to put their clients’ best interests first. This is why they are held to a higher standard of care than other advisors who are not fiduciaries. They are also legally obligated—and held accountable—to their duty by the United States SEC.
There are a number of ways in which a financial advisor can be paid:
- By commission only. This means of compensation involves an advisor receiving a commission for each product that they sell. This is typically based on how much each client invests.
There are many different types of financial products, such as mutual funds, annuities, and individual stock purchases. These products can be sold through companies such as:
- Mutual fund companies
- Brokerage firms
- Insurance Companies
Many of these companies use sales representatives, who typically are not fiduciaries so they are held to a lower level of suitability standards than a financial fiduciary. If you are going to purchase a commission-based product, be sure that the advisor you are working with provides you with a full disclosure of how they will be compensated and how those fees impact your overall performance and cost structure while owning that product.
- Hourly fees. These financial professionals, most commonly, financial planners, are compensated by the hour or by the project. Because they do not accept any commissions they are free to focus exclusively on providing specific services such as financial plan development, portfolio reviews, or other financial related projects that you may need one time.
- Assets Under Management, This fee is typically assessed each quarter, based on the balance of your assets. The advisor receives a fee that is typically based on a percentage of your asset total that they are managing for you. Example: If you have $250,000 invested with an advisor they may charge a 1% annual fee ($2500), assessed quarterly ($625), to manage your assets.
- Fee-based. This compensation model can be confusing: These advisors may get paid primarily through ab asset-under-management fee, as described above. However, they may also accept commissions, when it’s appropriate for the client’s specific needs.
- Subscription fee. This is a relatively new fee model that many financial planning firms are deploying. Similar to other monthly subscription models, you pay a monthly fee for access to your financial planner to discuss various personal finance-related issues.
Now that you understand how financial planners and advisors are compensated, let’s explore why it might make sense for you to work with a fee-based advisor.
- Minimize Any Potential Conflicts of Interest
When you hire a fiduciary fee-based advisory firm, they are bound by duty to place your interests ahead of their own interests. When they are investing your assets, they should be selecting products that are best suited for your specific situation (age, goals, risk tolerances, etc.) If they do recommend a commission-based product, they have to disclose their compensation to you, along with any potential conflicts of interest that may arise from using that product.
- No Sales Tactics
Fee-based advisors are responsible for servicing you using the fiduciary standard so their loyalties should be to you vs. to a brokerage firm or mutual fund company. There should be no pressure or selling tactics used when you work with a fee-based advisory firm.
When you’ve made the decision to hire a wealth advisor, a good practice for your search is adopting an unbiased approach that allows you to compare advisors on their individual merits.
As a rule of thumb, Registered Investment Advisors (RIAs) are fiduciaries.
Most high-net-worth individuals and families work with a team of advisors that possess highly specialized skills including financial planning, investment and portfolio management, tax planning and strategies, estate planning, and multi-generational wealth transfer plans. This type of solution can be helpful if you have a complex financial situation and you don’t want to work with multiple service providers.
Wealth Management Goals: The Interview Phase
As important as research is beforehand, sooner or later, you will need to make contact with possible advisor candidates. When you interview potential private wealth advisors, you should come up with a list of objective questions such as:
- Are you a financial fiduciary?
- How are you compensated?
- Are there other fees that I need to be aware of?
- Do you have any conflicts of interest I should be aware of?
- What are your qualifications?
- How do you define risk?
- How long have you been providing advisory services?
- How will you allocate my assets?
- Do you have a clean compliance record?
- The advisor(s) you interview should be willing to provide you with this information in written form so you have documentation of your discussion.
As an entrepreneur, there are many things that you need to focus on. Having a trusted advisor is especially important when it comes to managing cash flow and planning strategically for the long term. For example, you will want to make sure that you have enough cash on hand in case your business has an unexpected loss or receives an influx of new customers.
Understandably, most small business owners’ primary goal is growing their company and reaching success as quickly as possible. You need someone to help you develop a long-term financial plan for your business (to accompany your general business plan) along with coordinating your personal finances.
When business conditions change, (as they often do), it is important to have an advisor who is available to help guide you through those times so any impact is limited. A financial advisor can assist you as a small business owner by:
- Helping create an operating budget
- Helping develop a business investment strategy with company profits
- Developing and managing a retirement plan for your employees
- Helping you with your business exit financial planning
As a business owner, time management is a critical component of your success. That’s why many business owners partner with a financial advisory firm that can handle the heavy lifting of managing your business’s finances so you have more time to focus on managing and growing your operations.
As your investments grow, understanding how fees are applied to those balances is important. Typically a financial advisory firm has a sliding scale of fees that are assessed based on the amount of money that they are managing for you. Fees are charged annually, but collected quarterly. As an example:
- $0-$1,000,000 1%
- $1,000,000 – $2,000,000 .50%
- $2,000,000+ .25%
Say you have $1,500,000 of investments. The first $1,000,000 will be charged at a rate of 1%, which equates to $10,000. The next $500,000 would be charged at the rate of .50% or $2,500. So the annual fee would be $12,500 or $3,125 per quarter.
Remember that there are other fees, such as money manager and custodial fees that should also be taken into consideration so be sure to ask your financial advisor what those fees are and how they are assessed.
Before you entrust someone to manage your money, it is vital to find out how much they charge.
Many high-net-worth individuals and families look to private wealth advisors to assist in formulating a financial plan that includes multiple generations. As you accumulate wealth, you want a way to ensure that your legacy is passed on to your loved ones when the time comes. A comprehensive multigenerational wealth plan could include items such as:
- Identifying who will oversee the disbursement of your estate
- Overall goals and intention for inheritance within the family
- Making decisions about when and how assets are spent
- Transfer of assets from a family business
- Giving financial gifts to younger relatives
- Outlining how personal property will be distributed/sold
- Addressing any taxation issue from the sale of assets
- Charitable donation planning
While building a multi-generational wealth plan is involved and potentially complex, you can be assured that your family will reap the benefits of your planning efforts.
As your wealth accumulates and your financial status becomes more complex, having the right private wealth advisory team managing your savings makes a lot of sense. Working with an independent financial fiduciary who will be looking out for your best interests, especially in volatile markets, can be very beneficial.
ViaWealth is an independent wealth management firm that provides investment services, portfolio reviews, tax planning strategies, and financial planning advice to high-net-worth individuals and families throughout Minnesota. Our comprehensive approach includes investment management, tax planning, and other financial planning tools, such as business succession planning, estate planning, and charitable giving strategies.
Our values-based mission is to help clients pursue their goals by reducing risk and effective wealth management strategies.
That is why we regularly perform an investment portfolio review on all accounts—so that you know exactly where your assets are invested at all times. Contact us today.
ViaWealth, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.