For high-net-worth individuals (HNWIs), having a financial advisor is crucial for navigating the complex world of personal finance management. It can be easy to underestimate the nuanced knowledge required to successfully participate in financial markets, even when they are stable. Investors can also easily underestimate the risks and consequences of not seeking the counsel of a professional. For HNWIs, wealth preservation and growth are two primary goals – not having an expert to manage one’s finances can be detrimental to one’s financial health in the long term. This article addresses some risks investors may face when choosing not to partner with an asset management expert.
Lack of comprehensive financial planning
A key role for a financial planner is curating a comprehensive, holistic plan that encompasses all financial aspects of their clients’ lives. Without the guidance of a financial advisor in Glenview, a local HNWI might overlook critical elements in their planning, such as
- Retirement planning: Financial planners are trained to assist clients in designing tailored roadmaps that allow for the fulfillment of retirement goals. Retirement is a time in anyone’s life that should be comfortable and enjoyable—neglecting to consider this when curating a financial plan could mean that retirement becomes a time of stress and regret instead.
- Estate planning: just as important as enjoying one’s retirement is planning the execution of one’s estate when you pass away. This is a crucial part of any comprehensive financial plan for HNWIs, and often has life-changing potential for future generations and next of kin. Should an estate be poorly planned for, designated beneficiaries might find themselves in conflict or burdened by taxes or other financial losses that could have been avoided through proper planning by an expert. Having familiar knowledge of their client’s wishes to handle their estate is one reason a trusted financial planner in Oak Park (or your local area) is adequately equipped to handle estate matters.
- Tax optimization: Tax laws and regulations are notoriously complicated and subject to unexpected changes, especially for untrained investors who are not necessarily kept up-to-date and informed. Having someone who is an expert in understanding the best strategies for allocating funds to tax-efficient investments should be a major consideration for investors in affluent areas in Illinois, for example. Local HNWIs should consider the services of a financial advisor in Glenview, or a financial planner in Oak Park to ensure that they are not being over-burdened by tax due to a lack of expertise.
Emotional decision-making
Our personal finances and assets often represent our professional contribution to our community and our families. Entering a financial market without the necessary know-how can lead to massive financial losses that may not be recoverable. During challenging personal times or in moments of market volatility investors might make subjective, irrational financial decisions. One seemingly small decision could be catastrophic for an investor’s portfolio, affecting major aspects of their own lives and the lives of those who rely on them. Financial advisors are trained to understand market fluctuations and are not likely to panic sell or overbuy shares, for example, as someone less knowledgeable and more subjective might.
Failure to monitor and adjust plans
High-net-worth individuals have their careers and lives to focus on and manage – it will not always be possible to effectively monitor their financial portfolios and make decisions or adjustments that may be called for in critical timeframes. Financial advisors are dedicated to looking after their clients’ portfolios so that their clients can focus on what matters to them. Financial advisors also understand what events or circumstances require plan adjustment or re-alignment, while an investor might not. Major life events such as divorce, marriage, the birth of children, and sudden illness are all situations that would require careful readjustment of finances. This may not (and should not) be the investor’s focus during significant events like these. Financial planners are also trained to watch market trends and economic changes and adjust plans accordingly. Trained experts can also respond to local and global events and how they might affect their clients’ assets.
Conclusion
While some HNWIs may have the requisite knowledge to manage their assets and finances, it is not usually worth the risk. Seemingly small decisions that are not professionally or expertly informed can have severe consequences for an asset and wealth portfolio, which can cause significant financial loss or penalty. Experts highly recommend that HNWIs use a financial advisor’s services so that they can focus their time and attention on the other important aspects of their lives.