Affluent investors tend to be savvy and successful. However, they still may have blind spots when it comes to managing their money. Here are five finance tips those with a high net worth should keep in mind:
- Accept that you can benefit from financial planning. Many people think that just because they have sufficient assets to meet any expected needs, they need less or no financial planning. What they’re missing out on is a complete picture. A financial advisor can help to accurately provide context around assets, liabilities and annual expenses, which in turn can offer insight and analysis into spending ratios, annual expenses and, possibly, misallocation into certain sectors causing undue risk to the portfolio.
- Focus on the financial objectives, not the money. What happens all too frequently is an individual looks at some statements and says, I’ve got all this money, I’d better manage it. Then when he or she speaks to an advisor, the financial planner picks up the same wavelength and focuses just on the money. First and foremost, both clients and advisors need to focus on the individual’s values, goals and objectives.
- Ask how the advisor is paid. Understanding an advisor’s compensation structure can be an eye opening experience. Are the fees time-based or asset-based? Do commissions come from mutual funds, from insurance products or something else, even a combination? You have a right to know how you’re spending money to have your portfolio managed.
- Audit your portfolio for hidden (especially ongoing fees). This is especially true with inherited assets or products that may have rolled over or changed since you initially selected them. Be sure to examine any mutual fund wrap programs, which are portfolios of mutual funds wrapped up in advisory platforms with annual fees. You have every right to ask your advisor if he or she can reproduce a similar portfolio that strips out many of the fees of the actively managed mutual funds.
- Right-size insurance. Whether it’s life, health, homeowners, automobile or other, the proper “ not excessive “ insurance coverage is crucial to any well -designed financial plan. Decide what is most important to you, transfer the risks to an insurance company, pay the premium, and have some peace of mind.