(Forbes) There is a good financial advisor for virtually every kind of investor, but the best financial advisor for Apple CEO Tim Cook is probably not the best one for a 28-year-old who’s still saving for a down payment for a first home.
And just because an advisor serves other wealthy clients doesn’t automatically make them the best fit either.
If you’re a high-net-worth client -- and especially if you’re a corporate executive -- you need a financial advisor who is well-versed with such clientele and has the time to give significant attention to your needs. The more wealth an investor has, the more complex their financial picture. That brings both greater opportunities and greater risks.
Often, high-net-worth investors with high-powered careers ought to seek an advisor with sophisticated tax and estate planning skills. Unfortunately, few advisors will make their lack of such expertise clear to prospects or clients without any prompting.
Therefore, you should test advisors' depth of knowledge by broaching a few specific subjects.
Capacity And Current Clientele
Begin by inquiring about advisors’ average client size and the number of clients they serve. Then, go a step further -- asking about demographics, industries, etc. -- to determine if those clients share complex financial needs similar to yours. Although you don’t necessarily need to fit into a specific niche, advisors who work with a few dozen clients like you might be a good fit.
Your third question can get to the point: “Are you a sophisticated expert on tax and estate planning solutions for high-net-worth investors?” If they say, “Yes,” press for more details about stock options and wealth transfer.
• Discuss options to diversify: Corporate executives with generous stock options need alternatives. While having a large portion of your wealth tied up in one stock is typically not a great idea, neither is gradually selling those shares over time, since the market is fickle and may not always cooperate. Ask your advisor whether some products or strategies allow investors to switch out of large, single stock positions in favor of something that is a bit more diversified, all without triggering immediate capital gains obligations.
• Be familiar with the restrictions and consequences of Rule 144: Investors who could have insider knowledge of a company in which they also hold stock should ask advisors, “How much of this stock can I sell, and how often can I sell it, without running afoul of the law?” This question isn’t just a gauge of the advisor’s knowledge base. The answer could have material consequences for your life; violating the law could result in penalties ranging from monetary fines to jail time.
The SEC Securities Act Rule 144 pertains to the selling of “restricted and control securities.” It limits an investor’s ability to sell securities acquired through unregistered, private sales of the issuer or from an affiliate of the issuer -- affiliate meaning an executive, director or large shareholder who can control the management and policies of the issuing company. The Internal Revenue Service also may take action on investors who violate the rule.
A related question might be, “What if I’ve already done that?” It’s surprisingly common for executives or their heirs to sell stock without realizing or recalling that they had insider knowledge. A good advisor should collaborate with legal counsel to determine your next steps.
Transferring Wealth To Family And Philanthropic Causes
High-net-worth investors concerned with their legacy should have still more pointed questions for prospective advisors, like, “What’s the best way to pass on some of my concentrated stock positions while minimizing the tax burden on myself and my beneficiaries?” or, “What can my goals be after I retire, if I don’t really want to retire?”
The latter question might be vitally important if you’ve created a successful business or risen through the ranks of a company and feel ready for yet another challenge.
As a starting point, your advisor ought to have detailed answers about philanthropic uses for your wealth. If you hope to one day launch a foundation or a scholarship, for example, it may require alterations to your retirement or estate planning documents. Such causes can drive your overall financial plan and provide clarity on how you prioritize your time and resources today.
High-net-worth investors need more than a generic asset manager, which has become a commoditized field, and more than a generic financial planner with a cheerful disposition.
Whether you need white glove concierge service or something akin to a family CFO, ask the questions that clarify whether the advisor is up to the job.