High-Net-Worth Individuals Need A "Real" Professional Financial Advisor

By Jay Jung

Undeniable perks come with wealth, but there is a downside too. Greater financial holdings equal greater financial headaches. The National Financial Education Council says a lack of personal financial knowledge costs average Americans $1,200 a year. Just imagine what is at stake for you as a not-so-average, high-net-worth individual (HNWI). The more money you have, the more you stand to lose. Let’s look at how a highly experienced financial adviser can safeguard your investments, maximize your returns, and — most importantly — give you peace of mind so you can relax and enjoy the upside of the money you’ve earned.

HNWIs have access to expanded perks through financial advisors

Money has a way of opening doors. You’ll find you are afforded perks as an HNWI in the financial space as well. After all, your assets put you in high demand. HNWI status justifies a personalized touch in investment management, estate planning, and tax planning, and with that individualized touch comes perks.

If you have at least a million dollars in liquid assets, you typically meet the standard of an HNWI, but the definition varies between banks and financial institutions. HNWIs are afforded more benefits at banks than the average customer. Your status most likely qualifies you for services with reduced fees, discounts, special rates, and access to exclusive investment opportunities.

Financial advisors know how to optimize investment perks for HNWIs

Qualifying as an HNWI allows you to access investment accounts that are separately managed instead of being lumped into regular mutual funds. Why is this beneficial? The vast majority of investors only receive professional money management when they bulk their assets together with hundreds of others in mutual funds. As an HNWI, you can take advantage of customized portfolios personally managed by the same experts who manage large mutual funds.

In addition, as an HNWI, you have the option of investing in private equity funds, hedge funds, and private real estate investment trusts. These alternative investments may be riskier than typical mutual funds available to the public, but they can deliver returns that beat the market or protect against losses in the right circumstances. Be warned; these funds are risky investments. Before navigating them on your own, obtain the assistance of a highly-qualified professional financial advisor.  

Professional financial advisors at top firms can also assist you in taking advantage of initial public offerings (IPOs). In a nutshell, an IPO happens when a private corporation offers shares to the public for the first time. Not everyone gets the opportunity to participate in a new stock issuance, and a professional financial adviser will walk you through the procedure. 

Often times we hear about the “IPO pop”, which is the jump in stock price when the newly offered shares first trade in the public market. Getting access to these shares at IPO prices allows investors to benefit from that first-day pop in share price. IPO shares are typically allocated to institutions, but certain top-tier wealth management advisors will be able to provide access to IPO shares to HNWIs.

Another big advantage of a wealth management account is a revolving line of credit. Often times wealth management firms will offer a low-interest rate line of credit for up to 65-75% value of the assets under management. This provides additional flexibility in financial maneuvers for HNWIs. For example, when purchasing an investment property, an HNWI can make an all-cash offer utilizing the revolving line of credit and then refinance it with a mortgage later. An all-cash offer allows the bidder to be more competitive and potentially win at a lower price. 

The more money you have, the more perks are available. A professional financial advisor will enable you to coordinate the personalized services of expert investors, top-notch lawyers, knowledgeable property managers, and the best philanthropy directors. Why turn down added benefits like that?

Professional financial advisers offer tax optimization for HNWIs

Unfortunately, no perk will get you out of taxes. With expert financial advice, however, you can minimize the amount you pay.

As an HNWI, a lot of consideration goes into optimizing your tax planning. Opening Turbo Tax on the night of April 14 won’t cut it, but strategic planning throughout the year can ensure you pay the least amount possible. Key considerations include the precise timing of income, purchases, and expenditures. Your investments, retirement plan, tax filing status, and deductions must all work together to create the best possible outcome.

Tax optimization is where you may appreciate your professional financial advisor most. Attention to detail leads to significant value, but do you want to be the one unraveling these complicated financial issues? Taking advantage of comprehensive planning from a professional financial advisor in your investment management, tax optimization, and estate services is like having a household CFO.

Professional financial advisors can help HNWIs avoid unfavorable tax issues

Furthermore, as an HNWI, you are far more likely to run into unfavorable situations that could cost you a lot of money when taxes are due. Have you received stock options from your company? Did you obtain company stock when you retired? Are you planning on selling your company or property investment?

Managed incorrectly, any of these situations could generate capital gains that will boost you into the next tax bracket. Your financial advisor will enable you to reduce capital gains in your investment portfolio, sell stock options in a tax-friendly way, and transfer highly appreciated securities into trusts where they can be sold without accruing capital gains taxes. 

The more money you have, the more work is required to maintain and preserve your assets. Your investment management, tax optimization, and financial planning are complicated enough to warrant specialized skill and expertise. Hiring a financial advisor allows you to leave some heavy lifting to the professionals.

— Jay Jung, a small business thought leader, Jay is the founder and managing partner at Embarc Advisors and has nearly 20 years of experience in strategic finance. Jay is former Goldman Sachs Investment Banking Vice President and McKinsey & Company Engagement Manager. He currently works with startups as a fractional CFO or advises them as a consultant.