The vast majority of high net worth investors work with financial advisors. What financial planning strategies are they likely to gain from the relationship?
The vast majority of high net worth investors work with one or more financial advisor, and they are likely to develop financial planning strategies as a result, according to new Millionaire Corner research on the relationships between affluent investors and financial professionals.
More than 80 percent of high net worth investors, those with investable assets of $5 million to $25 million, report working with a financial professional, according to our research, and they’re likely receive advice on a range of financial planning and investment topics. Here are some of the key financial planning strategies high net worth investors develop with their advisors:
· Creating a Written Financial Plan: More than half (52 percent) of high net worth investors have worked with an advisor to create a written financial plan, and 6 percent plan to seek this type of advice in the future. A written financial plan is one of the most important financial planning strategies, one that defines financial goals, investment horizon and tolerance for risk, laying the ground work for saving and investing decisions. Nearly 90 percent of high net worth investors say they are very satisfied or satisfied with the plan they developed with their advisor.
· Creating an Investment Plan: More than two-thirds (68 percent) of high net worth investors have worked with an advisor to establish an investment plan, and 8 percent plan to seek this type of advice in the future. Key among financial planning strategies, an investment plan designates how assets are distributed across a variety of investment products. Investors with a higher tolerance for risk may select a more aggressive mix of investments, while more conservative investors might weight their portfolio toward less risky products, such as fixed-income investments.
· Diversifying Assets Away from a Concentrated Position: Seventy percent of high net worth investors have worked with an advisor to diversify their portfolio, and 5 percent plan to seek this type of advice in the future. Diversification help reduce risk by investing in products that react differently to market conditions. It is among the most important financial planning strategies in the minds of high net worth investors, who rank diversification and risk as their top two investment selection criteria.
· Selecting Individual Stocks and Bonds: Three-fourths of high net worth investors work with a financial professional to select stocks and bonds, and 3 percent plan to obtain this advice in the future. High net worth investors tend to have large exposures to equities, using the anticipated income and appreciation as one of their most common financial planning strategies for building wealth. It’s interesting to note that high net worth investors are more likely to work with a full-service broker than any other type of financial professional.
· Implementing Tax-Advantaged Strategies: Sixty percent of high net worth investors work with a financial professional to minimize the tax consequences of their investment decisions. The professional input may help explain why high net worth investors are more likely to participate in 401(k)s, 529 plans, IRAs and other tax-advantaged investing. These financial planning strategies also reveal the high level of concern the high net worth express over the fiscal cliff and likely tax increases.
· Establishing an Estate Plan: More than half (56 percent) of high net worth investors have worked with a financial advisor to establish an estate plan. An estate plan can help ensure the orderly and efficient transfer of wealth from one generation to another, and counts among important financial planning strategies for individuals who want to use their wealth to help others.
How else are advisors likely to work with high net worth investors? More than half the high net worth say they work with advisors on retirement planning, a vital aspect of personal financial management. Less than half of high net worth investors works with an advisor on establishing sufficient cash flow, planning for long-term care, selecting alternative investments or using credit effectively, despite the potential importance of these financial planning strategies.