Have You Outgrown Your Financial Advisor?

What to Look for in an Advisor Who Can Meet You Where You are Today and in the Future

I often meet with successful individuals who, as a result of their financial success, have financial situations that have grown significantly more complex over time. However, too often their financial plans and the advice they receive from their financial advisors has not kept pace.

This typically results in a sense that things are not what they should be (or could be) with regards to finances: taxes feel too high and the growth of an investment portfolio seems lacking. Basically, everything is more complicated than it should be. It can be hard for an individual who has worked with an advisor for years to put a finger on the root cause of that unease, but upon closer inspection, the usual issues come into focus.

For example, consider the following hypothetical scenario:

1. A successful individual has been working with an advisor for years who has  not been helping her consolidate “like-assets,” meaning she had multiple taxable accounts and multiple IRAs. This may seem like a simple fix, but after 20 years of working and accumulating wealth, she had so many different accounts that it became incredibly cumbersome to determine how to bring them together to work cohesively, and how to avoid significant tax ramifications.
2. Despite not needing income for quite some time, she was invested in dividend-producing stocks in her trust account, which created additional and unnecessary taxable income and returns that fell short of the growth portfolios her peers enjoyed. As well-meaning as her current advisor may be, this clearly was not a personalized investment strategy, nor was it appropriate for her growth needs, phase of life, or comfort levels.
3. She was holding a small percentage of bonds, to give her some peace of mind when the market was volatile, which was the right idea, however they were tax-inefficient bonds in a trust account. Instead of investing in California municipal bonds, which would have been federally and state tax exempt, her advisor had her in primarily taxable corporate bonds. Now that would be fine for a tax-deferred account, but not for the taxable account of a high-income earner.
4. She was not being introduced to solutions for her concentrated position – neither ongoing sales of RSUs, nor solutions for derisking her existing position. That put her at significant financial risk, as her net worth depended largely on the performance of one single company.  This was a risk that was weighing on her, and growing year over year.
5. On top of that, she had not been presented with other tax-mitigation strategies that could have made a significant impact on her overall net worth, like charitable offsets, deferred compensation, and concentrated stock solutions. When individuals reach a certain level of wealth, not acting upon tax-mitigation strategies at the right time can result in meaningful lost opportunity, and those gaps are amplified as time goes on.

This is not an uncommon situation, particularly for people who have created their own wealth and for whom their financial picture looks very different today than when they began their careers. It’s essentially the “boiling-the-frog” analogy – your wealth planning needs evolve considerably over a decade or two, but because it happens gradually over time, you don’t realize how much has changed until things have gotten way off track.

The bottom line is that many people are long overdue to have a heart-to-heart conversation with their advisor, as they have clearly outgrown what that person can do for them. If you find yourself in this situation, know you are not alone. The solution is to start asking questions, of yourself and your advisor, and being very honest with yourself regarding the answers:

• Are you discussing tax mitigation and optimization in detail?
• Is your advisor bringing estate planning strategies to you?
• Do you know the function/purpose of each of your accounts and the asset allocation being deployed in each?
• Has your advisor helped you define your short-, intermediate- and long-term goals, and explained how each of your accounts is designed to support those goals?
• Is your advisor guiding you on the complex portions of your financial picture (equity compensation, highly compensated employee benefits, estate planning, tax bracket navigation, effective gifting strategies, college funding, etc.)?
• Are you having robust wealth transfer and legacy conversations so that your wealth achieves the multi-generational impact you envision?

If your financial advisor is not able to answer or appropriately engage with that line of questioning, it’s likely time to find a new advisor. A qualified advisor should proactively initiate and lead these conversations on a regular basis, rather than simply wait for questions to arise.

There are myriad complexities that arise through the various stages of life and wealth accumulation. We owe it to ourselves and our families to ensure our advisors and financial plans have the ability to flex and evolve with those changes.

Let us help you find the right advisor for you and your family.