A financial team can provide a coordinated strategy for coping with a complex, volatile economic environment. Why aren't most Millionaires on board?
American millionaires are largely self-made and show an independent streak in managing their finances, but an increasingly complex and volatile market may call for the coordinated approach of a financial team.
A financial team composed of a tax specialist, lawyer and financial planner can help investors lay the groundwork for a well diversified, tax-efficient plan that suits their investment style and meets their long-term goals. The plan can help investors save for tuition, retirement and other life goals, and also efficiently transfer wealth to friends, family members and other beneficiaries. Investors expand the financial team to include specialists in insurance products and alternative investments including precious metals, collectibles and real estate.
Despite the many advantages, Millionaires are slow to embrace a financial team approach, according to a study released this month by Millionaire Corner. Ten percent of millionaire investors with a net worth of up to $5 million (not including primary residence) have not even considered using an advisor. Of the Millionaires who use advisors, more than two-thirds (68 percent) use one advisor. One-fourth use two advisors and only 7 percent use three or more.
“Millionaires on the whole are well-educated and hard-working,” said Catherine McBreen, president of Millionaire Corner. “They tend to be highly confident individuals and often feel they can do just as well, if not better, than a financial advisor. In fact, during the recession wealthy investors became even more involved in managing their investments.”
A full 16 percent of Millionaire investors do not use any financial advisors and 4 percent rely on friends or family members for financial advice even through they are not financial professionals. The most popular type of advisor among the 80 percent of Millionaires who use advisor is the full-service broker, who serves 37 percent of Millionaire investors. Seventeen percent of Millionaires use an independent financial planner, 15 percent use an accountant, 12 percent use investment managers, another 12 percent use discount brokers and 7 percent use an attorney.
Millionaires tend to prefer working with one advisor who can handle all facets of their wealth, but a financial team approach can offer valuable niche expertise and a coordinated approach. A tax advisor can help investors navigate frequent changes in tax laws as legislators struggle to support the middle class, stimulate the economy and balance the budget. A certified public accountant, or CPA, can help evaluate the tax implications of various investments and can help an investor shelter gains from taxes. CPAs are regulated by the state in which they practice. Some obtain the designation of personal financial specialist from the American Institute of Certified Public Accountants.
A lawyer can help investors protect their wealth through pre-nuptial agreements, shelter their assets from taxes through the use of trusts, and efficiently transfer their wealth with a comprehensive estate plan.
A financial planner can help an investor refine life goals, and can develop a corresponding plan that takes into account an investor’s tolerance for risk. Financial professionals can assume management of the plans, or can serve as advisors only. Insurance agents, stock brokers, bankers and trust officers can add to the services of the financial team.