In my more than 25 years of wealth management, the most consequential decision that I have seen family offices and ultra-high net worth individuals (UHNWI) make is – choosing their financial adviser. The risk of this taking this decision lightly and not having a rigorous process around it can be more impactful to their experience and performance, than their asset allocation. The reality is that this selection process is closer to a game of 3D Chess.
In many cases the selection comes from employing someone, or an organisation, they have known for years, a friend of the family, an advisor of someone in their network. The reality is that this is not a guarantee for success and making a mistake can have significant financial implications.
In many cases people use the following criteria:
• I like the bank and its reputation
• I like the advisor personally
• Their fees seem reasonable
• They can meet my return target
• They answered all my concerns
This may be a good starting point, but one has to delve deeper to ensure that you are engaging the right bank and the right advisor.
Let me give you two examples:
“I have no income and my lifestyle is maintained from my portfolio. I went to my financial advisor and explained that I need the highest return possible” Unfortunately, the advisor failed to ask additional questions and returned with a very risky portfolio to create a higher return. Client A needed a portfolio focused on income generation with low risk, as they couldn’t afford to risk their portfolio or their lifestyle. Additionally, the high-risk portfolio had higher fees, meaning that not only was the client spending more on their portfolio management but was risking their capital. The fee differential on a $10 million dollar account was more than $40,000 dollars a year and the risk could be a multiple of that.
“I am very happy with my current financial advisor he is charging me a management fee of 55bps (0.55%) on a $25mio portfolio, I believe this to be a fair fee” After further investigation we realised that the institution was charging the above-mentioned fee however they failed to inform the client of their all-in costs which were superior to 120 bps (1.2%). This meant they were paying an additional $162,500 in fees per year that were not shown on their statements.
Unfortunately, we often get engaged when it is too late, and we must deploy an urgent fix. The reasons most customers have a bad experience is because they often fall into emotional or subjective traps and have difficulty in selecting the right fit.
When we work to assist our clients, we are looking at additional criteria such as:
• What is the experience of the advisor and have they experienced any economic downturns?
• How about fees, did you ask all the right questions?
• Do they offer passive management, active management, or both?
• What is their track record?
And the list goes on….
At White Knight, we do the analysis and remove the emotion. We review every important detail and give you a complete report. If changes are necessary, we will highlight what you should focus on and run the process for you. Whether it be on existing assets or an upcoming cash out, we do this on a no names basis, taking the stress off the table. Think of us as your outsourced chief investment officer (CIO).
We hope you have begun to understand the complexity of choosing a financial advisor and why people engage White Knight Consulting to take on this difficult mantle and time-consuming process for them.