High Net Worth Financial Advisor: An Added Value

Published October 21st, 2020 

Reading Time: 4 minutes

Written by: The Zoe Team

High net worth individuals and families have complex financial needs. Learn how a qualified high net worth financial advisor can take the worries out of managing your wealth.

Let’s face it: wealth comes with significant perks. You can own the home of your dreams in the location of your choice. You can provide the best for your children. Plus, you never have to worry about the constraints of a budget. With wealth comes greater financial complexity. From investment and tax optimization to establishing trusts and formalizing succession plans, a high level of knowledge and experience is required in financial planning for high net worth individuals.

That’s why most wealthy individuals and families partner with a qualified high net worth financial advisor to help steer the ship.

Evaluating Expanded Services

Those with more means get access to perks and personalized attention. It’s no different in the investment world. The more you have to invest, the more “high touch” services become available to you via a financial advisor. This ranges from customized and personalized investment portfolios, coordination with lawyers, property managers, and philanthropy director for instance.

If you have at least $1 million or more in investable assets, you also become eligible to invest in hedge funds, private equity funds, real estate investment trusts, and other alternative investments. These funds, which usually don’t offer the same level of investor protection as mutual funds, are designed to either deliver returns that beat the market as a whole or provide protection against losses in down markets. We must warn here, that it is extremely difficult to beat the market and equally difficult to identify investors that do on a consistent basis. So be wary of practices that offer access to alternative investments as their main value proposition.

In addition, while most investors only get access to professional money management expertise through mutual funds, high net worth investors can take advantage of separately managed accounts, which are customized portfolios of securities and funds that are often personally managed by the same investment experts who manage mutual funds.

Tax Optimization

Taxes are among the main drawbacks to wealth. We have found that taxes are an area where advisors can provide significant value. For instance, most retirement savings options are designed to prevent those with higher incomes from fully benefiting from these plans’ tax-reducing benefits. For example, while you can participate in your company’s 401(k) plan, your own maximum contributions in 2019 can’t exceed $19,000 (if you’re over 50, you can contribute an additional $6,000 in “catch up” contributions).

Your ability to open and contribute to IRAs may be limited. For example, if you’re married and you and your spouse’s combined adjusted gross income is $199,000 or more, you can’t open or contribute to a Roth IRA. Likewise, if your combined income is $121,000 or more you won’t be able to make tax-deductible contributions to a Traditional IRA, although you can contribute on an after-tax (non-deductible) basis. For this reason, the affluent often create trusts or foundations in order to maximize their impact with their wealth in a tax-efficient matter.

Most affluent people don’t have the time or desire to figure out complex investment issues on their own. That’s why so many hire professionals such as investment advisers to manage their wealth.

Investment advisors value wealthy clients the most and try to woo them by offering them comprehensive financial planning, investments, tax, and estate services and access to alternative investments. In some cases, advisors truly become the clients’ Household CFO by managing their monthly cash flow, liquidity needs and coordinating with lenders to find the best possible rates.

Anticipating and Minimizing Unfavorable Tax Situations

Those with higher incomes often face unique situations that could result in unfavorable tax consequences.

For example, if you work for a corporation you may receive company stock or stock options that, when exercised, could subject you to significant capital gains. The same risk can occur if you’re scheduled to receive deferred compensation in the form of highly appreciated company stock when you retire. Or, if you’re planning on selling your company or partnership stake in a professional services firm.

If any of these situations are handled incorrectly, the gains they generate could elevate you into a higher tax bracket, leaving you with far less of a financial reward than you expected. That’s where a financial advisor, working closely with your CPA or estate planning attorney, can help. They can find ways to reduce capital gains in your investment portfolio, exercise and sell stock options in a tax-efficient manner, and transfer highly appreciated securities (such as company stock) into vehicles such as a trust, where they can be sold without subjecting you to capital gains taxes.  

Protecting Your Wealth From Lawsuits

It’s a fact of life: The wealthy are far more vulnerable to nuisance lawsuits than those with lower incomes. A person who slips on your sidewalk files a multi-million dollar personal injury lawsuit. A dissatisfied customer or terminated employee sues both you and your company.

Liability insurance might provide some protection, but a particularly vicious litigant may try to go after your personal wealth.

If you believe that your net worth could be at risk, a financial advisor can recommend strategies for shielding these assets from both plaintiffs and creditors, such as placing investment assets into a trust. The advisors will work with a trust attorney to establish a trust and facilitate the transfer. This team can also help you develop an estate plan that can ensure that your assets are passed on your heirs in an efficient manner.

Financial Planning for High-Income Earners Who Aren’t Wealthy… Yet 

Of course, not all people with high annual incomes are wealthy-yet. Many young people, particularly attorneys, physicians, and those in the biotech, engineering and finance fields, start their careers earning six-figure salaries.

Some of these future high-net-worthers are either not particularly adept at managing their own finances nor have the time to do so. They’re often burdened with a boatload of debt, including student loans and have to calibrate between paying down debt and savings for future goals, like buying a home.

A financial advisor can help these young high-earners develop a plan for managing inflows and outflows, putting money aside to save for retirement, a new home, or their children’s higher education, and choosing appropriate life and home insurance options to provide financial security for their loved ones.

Finding a Qualified High Net Worth Financial Advisor to Deliver Financial Planning Services

Many wealthy people work with advisors recommended by their friends, coworkers, and members of their professional network. But getting a name is not enough. Any financial professional can say that they provide high net worth financial services, including bankers, accountants, and insurance salespeople. While technically these claims may be accurate considering it only takes passing the Series 66 exam (one week study time) to call oneself a financial advisor, there is a world of difference between someone who passed an easy exam and an experienced financial planning professional who possesses the skills, training, and experience needed to manage the complex financial needs of the wealthy. Your financial situation is incredibly unique, and having a trusted advisor who you can count to manage your money with your best interest in mind is rare. 

That’s why it’s important to thoroughly investigate the credentials of any advisor you’re considering. At the very least, any advisor you’re considering should be certified as a CFP® professional by the Certified Financial Planner Board of Standards (CFP Board) or be a Chartered Financial Analyst (CFA). These financial planning professionals earn their certifications by being experienced financial professionals who have passed a rigorous financial planning examination and agree to uphold the highest standards of integrity, accountability, and client service. Alternatively, our own advisor search feature offers a quick way to find fee-only financial planners who have passed our rigorous screening process and who specialize in working with high net worth individuals and families.

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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