In his short story “The Rich Boy,” F. Scott Fitzgerald wrote, “Let me tell you about the very rich. They are different from you and me.”
When it comes to selecting a financial advisor, wealthier investors often need a different level of service, when compared to what’s called the “mass affluent.”
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An investor with assets between $100,000 and $1 million is generally considered mass affluent, but the definition of high net worth varies. Some advisors consider a high-net-worth client to have over $1 million in assets; others use a $10 million threshold.
Choosing a financial advisor can be challenging for high-net-worth investors for a few reasons. Because they have more complex financial needs, high-net-worth clients need an advisor, or team of advisors, with specialized skills. Keep the following tips in mind as you select the best advisor for your needs:
— Find a team with long-term planning experience.
— Avoid product salespeople.
— Conduct multiple interviews.
— Seek services beyond asset management.
— Find a firm with adequate resources.
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Find a Team With Long-Term Planning Experience
“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.”
This requires, he adds, engaging an advisory team with extensive experience in creating an overarching financial plan tailored to a given family’s unique needs and circumstances.
These wealthier clients often want a personalized approach, which narrows down the pool of advisors who can meet their specific requirements.
“High-net-worth clients have a target on their backs; everyone is shooting to get at their wallets,” says Travis Maus, CEO of S.E.E.D. Planning Group in Knoxville, Tennessee.
Avoid Product Salespeople
“They should look for an arrangement where they clearly pay for the planning advice, no strings attached,” says Maus. “If the advisor only makes money from selling products or investment management, they are a product or investment salesperson, and that is where their loyalty will lie.”
When he says salesperson, Maus is referring to advisors who receive commissions for selling financial products, such as mutual funds or annuities. In contrast, fee-only advisors don’t collect a commission; they are paid by their clients. That eliminates that particular conflict of interest.
Jen Reid, financial planner and founder of Base Financial Planning in Boston, says finding a qualified financial professional can be difficult, as many are selling high-commission products.
Reid adds that fee-only advisors are drawn to high-net-worth clients, as those advisors bill a percentage of assets under management. The more money a client invests, the more the advisor makes.
For example, an advisor whose fee is 1% would receive $10,000 a year from a client who invests $1 million.
That’s quite different from an advisor who operates using the transactional model of taking a commission from product sales.
Reid says high-net-worth clients should seek an advisor who charges a flat fee, based on the complexity of the work. She suggests using the resources of organizations such as XY Planning Network and Facet Wealth.
READ What to Know About Financial Advisor Fees and Costs
Conduct Multiple Interviews
“The biggest advice would be to interview multiple firms and advisors to see which one fits you the best,” Reid says. “You will learn a lot in the interview process.”
That process will help high-net-worth investors understand which advisors they click with personally, and which advisors have the requisite knowledge and experience best suited for their situation.
“High-net-worth individuals often accumulated wealth by taking a risk and doing something different from the average American,” says Matt Pruitt, founder of Exhale Wealth Management in Minneapolis.
Often, high-net-worth investors amassed their wealth by starting a business or accepting a material portion of their compensation as equity, which is riskier than taking a salary.
“Those individuals should work with an advisor who specializes in clients with similar circumstances, rather than an advisor who broadly focuses on high-net-worth individuals,” says Pruitt. “Everything about a potential advisor’s website, marketing and onboarding process should feel like it was specifically tailored to you, as it should be once you reach a certain level of wealth.”
Seek Services Beyond Asset Management
The services and approach most suited for high-net-worth clients go beyond asset management. For example, even wealthy clients need to understand how to manage cash flow and spending, which can help them meet goals such as capital preservation, philanthropic giving and estate planning.
“High-net-worth individuals should also have a great tax- planning team, as well as an experienced estate planning and attorney team,” says Reid.
She notes that high-net-worth clients usually have more complexity in their planning that requires legal documents. Those can include pre- and post-nuptial agreements, wills, trusts, beneficiaries, powers of attorney, and health care proxies.
Karen Harding, a partner in the private wealth practice group at NEPC in Portland, Oregon, says services high-net-worth clients should consider, in addition to asset management, include financial and estate planning, tax strategy, financial reporting, philanthropic advisory services, property management, household management, aviation management, and financial education and assistance for family members.
“While most firms do not offer all of these services, they are able to outsource to other firms to ensure that the client has their needs met,” she says.
Find a Firm With Adequate Resources
Harding adds that high-net-worth clients should consider whether or not an advisory firm has adequate resources and a team of professionals with the technical skills and qualifications required to do the job well.
“Make sure that an advisor has plenty of experience working with clients in similar situations and is trustworthy and personable,” she says. “Do not underestimate the importance of a good working relationship.”
Before beginning the search for an advisor, Carlin says, it’s essential for clients to clearly define their needs and anticipated services.
“An undefined objective makes measuring future success challenging,” he says.
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How to Find a High-Net-Worth Financial Advisor originally appeared on usnews.com
Update 09/14/23: This story was previously published at an earlier date and has been updated with new information.
