Why Partnering with a Fiduciary Benefits High Net Worth Individuals?

Why Partnering with a Fiduciary Benefits High Net Worth Individuals?

Affluent investors, including high-net-worth individuals, frequently encounter complex financial hurdles that traditional wealth management approaches may need help to address effectively. While you can try managing your finances, it may be time to consider outsourcing this important role to a fiduciary financial advisor

This article covers these topics:

  • When is the right time to turn your finances over to a wealth management professional?
  • What is a financial fiduciary, anyway?
  • How to vet financial advisors?
  • High-net-worth financial advice, explained
  • Tax strategies for high-net-worth individuals

When is the Right Time to Turn Your Finances Over to a Wealth Management Professional?

Knowing when to turn your finances over to a wealth management professional can be a pivotal decision in your financial journey. As your wealth grows, you may face complex financial challenges that require expert guidance to navigate successfully. Such challenges could include:

  • Managing a diverse investment portfolio
  • Dealing with tax implications of being a high-income earner
  • Crafting a comprehensive retirement plan. 

The right time to seek professional help is when these challenges become too time-consuming or complex to handle on your own, and you need a partner to help you pursue your financial goals efficiently.

A wealth management professional can provide valuable insight and guidance on the tax implications of being a high-income earner. Their expertise can help you develop tax-efficient strategies to optimize your financial situation and preserve your wealth for the long term. 

What Is a Financial Fiduciary, Anyway?

A financial fiduciary is a professional legally obligated to act in the best interests of their clients. Fiduciaries must always put their client’s interests ahead of their own.

Similarly, these professionals are required to disclose potential conflicts of interest. This means that they are far more likely to recommend investments and strategies solely because they could benefit your portfolio. Since he or she is held to a higher standard, they should provide unbiased advice, transparency, and accountability. 

Especially amid today’s economic instability, you need a financial advisor who consistently offers sound advice. 

How Do You Vet Financial Advisors?

Financial independence comes with complex financial needs. These needs require more specialized expertise than the more common variety. From managing investments, and tax planning to estate/legacy planning, having a fiduciary financial advisor’s services can greatly assist high-net-worth individuals like yourself. 

Here are the key areas to scrutinize when vetting prospective wealth managers:

  • Their credentials. Look for financial advisors with relevant certifications such as CFP® (“CERTIFIED FINANCIAL PLANNER™”) in their bios. These are often linked to a firm’s Our Team page. 
  • Experience. As your wealth grows and becomes more complex, you should look for a wealth manager with significant experience, especially in volatile market conditions. 
  • The firm’s fee structure. Understanding how wealth managers are compensated is very important when hiring a professional to manage your wealth. There are three types of financial advisor compensation: fee-only, fee-based, and commission. 

Fee-only typically charges a percentage of your assets under management. They may also charge a flat fee or hourly fee for their service.

Fee-based advisors are very similar to fee-only advisors in their compensation model, with one caveat. They may also charge a commission on certain financial products that their clients may require (such as insurance-related products).

Commission-based advisors receive commissions when financial products are sold to clients. The fees are paid by the financial product companies (e.g., mutual funds, annuities). They can be fiduciaries but are not required to be fiduciaries. With that said, they must follow the suitability rule for their clients. 

  • Communication. Predictably, it’s best to seek a financial advisor that will be responsive to your questions and concerns. A good advisor will communicate regularly and inform you of any changes or updates to your financial plan. The better ones also seek to help increase your financial literacy.
  • Their professional philosophy. This core tenet of a financial firm dictates its values, culture, and approach to managing wealth. Understanding this can lead to better-aligning values and goals, possibly resulting in a more successful working relationship. 

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High-Net-Worth Financial Advice, Explained

There are multiple key areas where the affluent can leverage a specialized financial advisor, such as managing their investments. An experienced wealth manager can also be relied on to help you create a more diversified portfolio (to reduce the likely impacts of market volatility) and maximize your returns.

High-net-worth individuals often have many moving parts involved with planning their financial legacy, as well. These can include trusts, charitable giving, and tax planning. Trying to do it all by yourself can get confusing and fast. That’s why the right financial advisor can help create an estate plan to help meet your needs and ensure that your assets are distributed according to your wishes.

Another important area for high-net-worth financial advising is risk management. You may have significant assets that need protection from risks such as lawsuits, an unexpected disability, or premature death. A fiduciary wealth manager can help identify these hazards and create a risk management plan to protect your assets better.

The financially independent typically also have different retirement goals than the average person. Ideally, your financial advisor will assist you with creating a retirement plan to ensure your financial security throughout your retirement years. If you wonder why the affluent should care about financial security, consider the impacts of inflation combined with market volatility and a possible recession in 2023. 

Last but not least, many high-net-worth individuals desire to give back to their community or support causes they care about. If you’re similarly inclined, a financial advisor can help you create a philanthropic plan to maximize the impact of your charitable giving, possibly reduce your income tax burden, and more.

Tax Strategies for High-Net-Worth Individuals

high-net-worth financial planning

Managing your taxes is crucial to maximizing your wealth and protecting your assets. In other words, by implementing strategic tax planning, you could reduce your tax burden and leave more of your hard-earned money to future generations. 

A Roth conversion, for example, involves moving money from a traditional IRA or 401(k) into a Roth IRA. The primary advantage of this adjustment is that you can withdraw money during your retirement tax-free, as long as you follow the rules. It can be particularly beneficial for the affluent because you gain the financial flexibility to pay the taxes on the converted amount upfront.

Tax loss harvesting, on the other hand, involves selling investments that have decreased in value in order to offset gains from other investments. By doing so, you can potentially reduce your tax bill. For example, if you sold an underwhelming investment taking a $10,000 loss, you could then use that loss to offset $10,000 in gains from the sale of more successful investments.

It’s important to consult with an experienced financial advisor to determine the best tax strategies for your individual circumstances.

ViaWealth LLC has a team of fiduciary financial advisors with the experience you need. Schedule a free appointment to find out more.

ViaWealth, LLC is a Registered Investment Adviser. Information in this article is for educational purposes only and is not intended to be an offer or solicitation for the sale or purchase of any specific securities or other types of investments. Investing in the securities markets involve risk of principal and unless otherwise stated, returns are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before making any financial decisions. Past performance is not indicative of future performance.

More about the author: Reid Larson

Reid is the Managing Member and Founder of ViaWealth LLC.

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