Most entrepreneurs at one time thought that creating a successful business would be the most difficult task in the world. But once they created that business, they realized that maintaining, preserving and growing a successful business can be an even taller order.
It’s the same with money. Becoming wealthy is hard, but maintaining, preserving and growing that wealth can even be an even greater task.
What Makes Financial Planning for HNWIs Unique
Importance of Risk Management
As a high-net-worth investor, you must protect your assets from various risks including financial crises, economic recessions, market volatility, “acts of God,” lawsuits and other issues. The wealthier you become, the more attuned you are to various types of risks and the financial consequences of these risk factors.
“We find that the vast majority of new clients initially come to us most anxious about the risks associated with the long-term sustainability of their wealth,” says Adam Carlin, private wealth advisor at Morgan Stanley Private Wealth Management in Coral Gables, Florida. “This is quite often measured in the number of future generations of descendants and/or charitable causes which could ultimately benefit from the wealth they’ve created.”
Estate Planning and Thinking Generationally
HNWIs also tend to think generationally, or about how they can preserve wealth for future generations.
As a high-net-worth investor, this implies that estate planning is a big deal for you. You don’t just want to pass on wealth to future generations, you want to do so in the most cost-effective way .
Similarly, you are concerned about preserving your legacy, maintaining the unity of the family after your death, and also giving back to society in the form of charity.
Consequently, you are not just looking for a good investment management team; rather, you need a financial advisor who can also think generationally.
Tax Planning Is a Priority
The more of your money you can keep for yourself, the better. Therefore, you are also concerned about minimizing your tax liabilities. Every investment strategy you choose must pay attention to tax implications.
Since tax laws change, you also want to quickly understand the implications of current and proposed changes and act accordingly.
To that end, you need a financial advisor who understands the tax codes, keeps track of relevant changes and can design your investment strategies in a way that minimizes your tax liabilities.
Based on what we have covered, the following are crucial:
Wide Range of Competencies
You don’t want an advisor who is only good at maximizing returns from a portfolio. You want a team of experts that can also reduce risk, minimize tax liabilities and think with a long-term perspective.
In essence, you want a financial advisor who is excellent at risk management, estate planning, tax planning and retirement planning, among other capabilities.
Ability to Deal With Complex Portfolios
The portfolio that will meet your special needs will often involve complex strategies like risk hedging, tax-loss harvesting and investing in alternative investments (hedge funds, private equity firms, commodities, cryptocurrencies, etc.).
Personalized Offerings
The importance of personalization in financial advice cannot be overemphasized. Financial situations differ, and even best practices need to be applied in different ways to different people.
This is especially true for HNWIs. Wealthy people are not all alike, and their priorities vary. Thus, you will need a financial advisor who can treat you as a unique person and offer financial advice and strategies to achieve your unique goals given your future goals and current financial situation.
Experience and Expertise
Regarding experience, your focus should be on financial advisors with a good track record of working with HNWIs. An advisor with five years of experience working with HNWIs is preferable to an advisor with 10 years of experience who hasn’t worked with one.
This implies that the quality of experience should be prioritized over the number of years.
“Make sure that an advisor has plenty of experience working with clients in similar situations and is trustworthy and personable,” says Karen Harding, a partner in the private wealth practice group at NEPC in Portland, Oregon.
Regarding expertise, focus on whether the financial advisor has the kind of team that can offer the wide range of competencies you are looking for. Do they have expert risk managers and tax accountants, or are they all research analysts who only know how to select good stocks?
Fee-Only Advisors
You want a financial advisor who has a fiduciary relationship with their clients. That is, they are required by law to act in the best interests of their clients.
Collaboration With Other Professionals
Since your financial life is integrated into other aspects of your life, your financial advisor should have the collaborative skills to work with other experts. For example, during your estate planning, they will need to work with your estate planning attorney.
In essence, your financial advisor must have the interpersonal skills required to work with other experts to deliver the best results for you.
