High-Net-Worth Investment Management
Frequently Asked Questions
To help their clients achieve their financial goals, the financial advisor develops an investment portfolio including assets that provide both growth and financial security.
High-net-worth financial advisors can help their clients navigate the world of alternative investments, which requires significant weath.
High-net-worth investors need to get used to a new form of investing, which may be difficult to understand and which many not appear to have high returns.
Risks and returns are balanced through asset allocation, diversification being the key to mitigating risk and ensuring the desired level of returns.
Any individual who does not have extensive experience with investing should take advantage of the expertise of a financial advisor, in particular a fee-only fiduciary.
We have finally arrived at the price that everyone has been eagerly anticipating. It's also significant. The majority of wealth advisors typically charge a fee of 1%. Some use a sliding scale that accounts for people who are significantly wealthier. In addition to this charge, some also charge upfront commissions or performance-based fees.
Keep in mind that if your advisor is charging you a disproportionately low fee, make sure they are making up for it somewhere else with higher expenses. Simply put, you're unsure of where or how much. Alternatively, they simply place your money in a predetermined investment plan and allow it to grow naturally.
Cost 8: Actual Fee of Your Advisor
These are the costs paid by fund managers and the organisations that manage them. These costs vary in proportion to the number of businesses and types of investment plans they represent. However, they are real.
To clarify, we do not imply that you will be able to avoid any of these expenses if you use Bespoke Financial Advice to invest your assets.
We want to inform you of all the fees your advisor may charge you beyond the management fee. But as you can see, you can minimise many of these expenses and save a substantial amount of money by combining careful fiduciary management with a customised investment process that's unmatched.
Cost 7: Internal Expenses
We lack the time and resources to examine every expense that a financial advisor or money manager may devise. However, we frequently encounter this issue, particularly when the advisor has a financial incentive to oversee a larger amount of money, a conflict of interest that a fiduciary must disclose.
It's referred to as the margin. This procedure allows the client to borrow against the assets in the same account, freeing up more money for their use. Because these funds are on margin, they are subject to interest. All of the borrowed funds increase the total amount under the manager's control. So, is the advisor's purpose in providing this service to help the client or to raise their managed amount, and, in turn, their "cut"?
We took on a client who was losing €20,000 a year in margin interest charges and investment advisory fees because he fell for this scam. We helped her out of this predicament and made her money last a lot longer.
Cost 6: Other Undisclosed Costs and Fees
Part of what makes an investment in the stock market successful is how well your advisor handles profit and loss. Certain stocks increase in value and produce realised gains, whereas others have losses in the same month or year.
A vigilant wealth manager closely monitors this and uses leverage to offset some gains and any losses. Why would someone want to do this? since it lowers your taxable income. We recently managed a client's gains and losses so well that we were able to save €34,000 in taxes.
This kind of work requires awareness, time, effort, and painstaking attention to detail. As you've seen with other expenses, these strategies save tens of thousands of dollars annually. These savings have nothing to do with the stated performance rates that attract everyone's attention.
Cost 5: Cultivation of Tax Loss
If your fund manager sells a security, you may receive a commission or, in the case of a bond, a spread. The result is the same—this is an additional expense unrelated to the management charge. It's well known that not everyone has time or desire to read ninety-page prospectuses, but the broker must disclose these commissions. Therefore, many investors may not be aware of these additional expenses.
Many other investment transactions may also be subject to commission charges. Among other products, certain investment firms may offer annuities, target date funds, or wrap programs. These pre-arranged investment packages use a formula to make investments. That formula is unrelated to you, your situation, or your goals. It is completely uncustomizable. In addition, they probably receive fees and commissions for selling it.
The main thing to remember is that you need to sift through a prospectus to learn about these types of expenses. However, these expenses persist, gradually depleting your assets. These expenses, a few dollars at a time, can cut your net growth by tens of thousands or more.
Cost 4: Commissions
The first two expenses were simple to understand. The third cost, which primarily affects bonds, is a little more complicated. Here's the basic idea, without going too deep into industry jargon:
The difference between the purchase price and the selling price of a bond that you buy and then sell is known as the spread.
On the other hand, a bond manager may keep a portion of the spread as payment when selling bonds. People have told us that their wirehouse broker charges "zero" fees. This is obviously misleading, given that no one provides their services for free. It simply means that they won't charge you to manage your bond investments. However, as you're starting to realise, that's just one possible expense out of many.
Any bond broker who claims there are no fees is essentially making money off of the spread. For the investor, this is essentially a hidden expense. You'll never see or even realise it.
The spread is comparable to that of a used car dealer, who purchases a vehicle from a vendor and then sells it to customers at their asking price. The dealer keeps the difference between these two prices, which is similar to the spread.
For large accounts, the spread can result in expenses reaching millions of dollars. And you won't realise it. Find out how much your advisor makes on the spread if they buy and sell bonds with your money.
Cost 3: Spread in Bond Sale
Your advisor's fund allocation has a significant impact on how well your investments perform. Many advisors may allocate all or part of their capital to fund managers. Still, there are a plethora of investment opportunities. However, how many of them can be considered wise decisions?
Active fund managers and passive fund managers are the two main types of fund managers.
An active manager aims to beat the benchmark indexes as a team or individually. A passive manager, on the other hand, just mimics a specific market index, such as the Dow or the S&P 500.
As a result, your investment increases by 5% if the Dow does.
Let's concentrate on the expenses for the time being. The discrepancy in expenses is primarily due to the different fee schedules. In an attempt to beat the markets, Wall Street investors study markets, stocks, bonds, trends, and everything else in tremendous detail, which takes time and effort for active managers.
As a result, active managers charge higher fees, ranging from 0.60% to more than 2%. In our scenario, the passive managers we work with have costs that range from 0.07% to 0.2%.
Let's dissect it using an illustration. Let's say you have two different managers managing your €2 million investment. The second manager is passive and charges 0.2%, while the first is an active manager who charges a "modest" fee of 1%. For the time being, the returns they produce are negligible.
The costs associated with managing these funds are as follows:
Active Fund: Two million euros
Cost: €20,000 in fees (€2 million x 1%).
Fees for a ten-year term: €200,000
Auxiliary Fund: €2 million
Cost: €2,000 in fees (€2 million x 0.2%).
Fees for a ten-year period are €40,000.
Over ten years, the cost difference is €156,000.
You now understand why the real costs and other expenses are more significant than the fees alone.
Warren Buffett claims that between 2007 and 2017, investors wasted more than €100 billion on Wall Street money managers.
Let's now consider the combined impact of the first two expenses: active management fees and short-term capital gains taxes. Imagine investing in an active manager who frequently purchases and sells. You would pay nearly twice as much in capital gains taxes and five times as much in fees for the same investment if such a manager was in charge of your portfolio!
Cost 2: Active Vs Passive Funds
Hereunder a summary of capital gains taxes worldwide, with a focus on Europe:
1. Capital Gains Tax Rates in Europe:
· Denmark has the highest top capital gains tax rate at 42%.
· Norway follows with the second-highest rate at 37.84%.
· Finland and France both have a 34% rate.
· The average capital gains tax rate across European countries covered is 17.9%.
· For EU Member States specifically, the average is 18.6%.
2. Countries with No Capital Gains Tax:
Several European countries do not levy capital gains taxes on the sale of long-held shares, including:
· Belgium
· Czech Republic
· Georgia
· Luxembourg
· Malta
· Slovakia
· Slovenia
· Switzerland
· Turkey
3. Lowest Capital Gains Tax Rates in Europe:
Among countries that do levy a capital gains tax:
· Moldova has the lowest rate at 6%
· Bulgaria and Romania follow at 10% each
4. Other Notable European Countries:
· Germany: 26.38% (25% flat tax plus 5.5% solidarity surcharge)
· United Kingdom: 20%
· Italy: 26%
· Spain: 28%
· Sweden: 30%
5. Recent Changes in Canada:
While not in Europe, it's worth noting that Canada has recently announced changes to its capital gains tax system:
· The inclusion rate for capital gains above $250,000 will increase from 50% to 66.7% for individuals, corporations, and trusts, effective June 25, 2024.
· Capital gains up to $250,000 for individuals will remain at the 50% inclusion rate.
· The lifetime capital gains exemption for small business shares and farming/fishing property will increase to $1.25 million.
6. Global Context:
· Canada's changes aim to make its tax system more progressive and address wealth inequality.
· Many countries use capital gains taxes as a tool for economic policy and wealth redistribution.
· The treatment of capital gains varies widely across countries, reflecting different economic and political priorities.
It's important to note that capital gains tax systems can be complex, with various exemptions, thresholds, and special rules applying in different countries. Always consult with Bespoke Financial Advice for specific advice related to your situation.
Cost 1: Capital Gains Taxes
Investment firms almost never discuss upcoming content unless you specifically request it. Some advisors may not be able to respond due to a lack of knowledge or experience, not because they are lying. This may be due to the fact that many advisors simply repeat what they have learned, mimicking the actions of a parrot.
"What are your fees?" is a typically asked question of most advisors. However, the responses to this question often leave much to be desired. "What are your costs?" would be a more thorough inquiry.
It's common knowledge that nearly all advisors charge annual fees, which are typically between 1% and 2% of your assets. However, fees are only one of the numerous expenses related to investing. Every euro your advisor saves by cutting out unnecessary expenses will benefit you in the long run by investing in your future and helping you realise the retirement lifestyle you've always dreamed of.
These small-seeming expenses can add up to significant sums of money over time—tens or even hundreds of thousands of dollars every year. Our goal at Bespoke Financial Advice is to save you as much money as we can. It is an essential component of our personalised investment management process since every investor runs the risk of paying unnecessary investment expenses at different points in their lives.
Despite your advisor's ignorance, let's discuss some of these costs.
Here Are Some Strategies That Will Help You to Minimize Advisory Costs and Fees
Expert high-net-worth investment managers are aware of the difficulties and nuances involved in overseeing significant wealth. They are knowledgeable specialists who can help high-net-worth clients maximize returns and reduce risks by navigating the constantly shifting world of investments. Regardless of your preference for balanced investing, long-term growth, or wealth preservation, they possess the knowledge and skills to create customised investment plans that meet your goals.
By committing to provide outstanding service, they guarantee that every client receives the best possible attention and care. Utilizing our wealth of experience and in-depth understanding of the market, we work hard to provide the best outcomes and assist our affluent clients in reaching their financial goals.
In high-net-worth investment management, selecting the best wealth manager to manage your assets and wealth is crucial. It may be difficult to locate a high-net-worth financial advisor, but it is possible to find the right expert to meet your needs. The following procedures will help you choose a qualified wealth manager:
To get recommendations, speak with people in your network who have worked with a high-net-worth financial advisor and are making progress towards their financial goals. This is a wonderful place to start. Personal recommendations can provide you with insightful information and help you locate potential advisors who have a proven track record of providing first-rate service.
You can find a lot of information on the internet to help you in your quest for a high-net-worth financial advisor. You can locate advisors who specialise in helping people with large financial portfolios by using the online search tools offered by many financial management firms.
Finding an advisor with the requisite knowledge to successfully negotiate the challenges of high-net-worth individuals' financial management is essential. Any advisor you consider working with must be knowledgeable as well as fiduciary, which means they have a legal duty to put your interests first. To find out this information, you can check for the Certified Pension Planner (CPP) designation or ask for a written disclosure of the advisor's fiduciary status. Meet with the wealth managers on your shortlist to assess their qualifications and learn how they can help.
Prioritise those who act as fiduciaries, and make sure the advisor you select has the knowledge and experience to assist you in reaching your financial objectives. Through careful investigation and taking these things into account, you can find a high-net-worth financial advisor who is qualified to help you reach your financial goals.
A competent wealth manager will assist you in determining your risk tolerance, investment preferences, and financial goals in order to develop a customised investment strategy that supports your goals. By closely monitoring your portfolio and making necessary adjustments, they can mitigate risks and capitalize on market opportunities.
Choosing the Right High-Net-Worth Investment Manager
One might wonder how much high-net-worth investment management costs. Rather than charging hourly or flat fees, wealth managers employ a fee structure based on an annual percentage of the client's net worth. Thanks to this arrangement, wealthy investors can now freely access high-net-worth investment management services.
Wealth managers have a very bright future ahead of them, considering their main clientele. Wealth managers can make significant sums of money even though they only charge a small portion of their clients' asset values. They typically charge 1% to 2% of the asset value of their clients, which offers plenty of chances to make a good living.
Fees and Income in High-Net-Worth Investment Management
Wealth managers are financial specialists who provide a wide range of wealth management services. Their main target audience is high- and ultra-high-net-worth individuals, whom they assist in safeguarding and managing their future wealth. Wealth managers are different from other financial advisors in that they take a multidisciplinary approach and provide a wide range of services to clients who have significant assets.
Role of High-Net-Worth Investment Management
Wealth management services can help high-net-worth investors overcome these obstacles. The term "wealth management" describes a group of services pertaining to handling financial assets.
Typically, these services consist of:
· The management of assets
· An examination of a portfolio
· Preparing for retirement
· Estate preparation
· Preparing for insurance
· Tax preparation
High-net-worth investors can benefit from each of these services in a different way. For example, estate planning can guarantee that your beneficiaries receive your wealth as soon as possible after your death, while portfolio analysis services can help you optimise your portfolio and match it with your long-term financial goals.
Demystifying High-Net-Worth Investment Management
Even though they have more opportunities than people with an "ordinary" net worth, high-net-worth people still face numerous obstacles in their careers and retirement.
Among these difficulties are:
1. Increasing Your Portfolio: To gradually increase their wealth and net worth over time, wealthy people frequently diversify their investments across a range of asset classes. But in the absence of a solid plan, this might result in disastrous losses.
2. Safeguarding Your Wealth: For high-net-worth individuals, wealth protection is essential. A sharp decline in value or unanticipated bills, such as emergency medical care, can have a disastrous effect on wealth and even force a major reduction in standard of living.
3. Realising Your Ideal Retirement: For people who have had successful careers, retiring can be a big accomplishment. Without the proper strategy, though, it can be difficult to realise your ideal retirement. Speak with one of our wealth managers to find out how you can overcome these obstacles with retirement planning.
4. Giving Your Wealth Away: For high-net-worth investors who want to make sure their money goes to the people they intended, estate planning is essential. The distribution of wealth might not follow the deceased's wishes in the absence of a valid will.
5. Handling Taxes: People with a high net worth are typically in higher tax brackets. However, there are numerous legal methods available to lower your tax liability. Rearranging your portfolio for greater tax efficiency without sacrificing performance is possible with the aid of tax planning services.
The Challenges Associated with High-Net-Worth Investment Management
Everybody has a different goal of becoming wealthy. Some people aspire to become wealthy enough to live comfortably and occasionally treat themselves to luxuries. Some people want to spend a lot of money and never stop growing it. The latter group usually includes high- and ultra-high-net-worth individuals.
For some people, the definition of high net worth may not be evident. You must own assets worth at least €1 million in order to be considered a high-net-worth individual. It is also critical to differentiate between high- and ultra-high-net-worth individuals. A person with an ultra-high net worth should possess assets worth at least €30 million, excluding the value of their primary residence.
Understanding the Concept of Net Worth
Wealth managers are highly skilled financial professionals who provide full-service high-net-worth investment management, as previously mentioned. High- and ultra-high-net-worth individuals make up the majority of their clientele; they help them secure and manage their wealth for future growth and stability.
High-net-worth investment managers set themselves apart from other financial advisory services with their multifaceted approach. In contrast to financial planners, who might only provide guidance and planning for retirement, wealth managers provide a more comprehensive range of services tailored to the intricate requirements of clients with significant assets.
The Expertise of Wealth Managers in High-Net-Worth Investment Management
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Wealthy individuals tailor high-net-worth investment management to meet their financial goals and needs. This particular clientele has specific wealth goals, including the preservation and growth of their wealth and the desire for a high-end, sustainable lifestyle. In order to manage their wealth, these people require the assistance of wealth managers who are well-versed in this particular field. Please get in touch with us for more details and specialised assistance if you are a high-net-worth individual looking for expert advice on managing your assets.
Working with wealth managers who are experts in this field gives you access to individualized plans and solutions that fit your specific goals. These professionals provide advice on asset allocation, risk management, tax planning, and other crucial facets of wealth management. They have a thorough understanding of the opportunities and complexities associated with managing substantial wealth. Using their knowledge, you can improve your investing techniques and strive for long-term financial prosperity.