Over the years, we've seen many clients make mistakes when building their wealth.
Particularly when it comes to the professionals they hire.
These mistakes are as common with average investors as they are with affluent investors.
However, these mistakes seldom occur with the savvy affluent.
How do we know this?
Many of our clients have built their fortunes, avoided investment loss and protected their assets by building the right team around them.
Teams of investment, tax and insurance professionals.
Before I get into the seven pitfalls of choosing and working with advisers on your financial plans, I first want to touch on private banks.
Because so often we meet senior international professionals who are not satisfied with the service and performance they are getting from their private bank.
There's arguably far more to professional wealth planning and asset management than a private bank can and should provide.
A wealth-owning family typically needs a trusted adviser/steward that is not only able to take charge of asset management in relation to liquid assets, but who is able to help the family with investments in property and anything else the family is interested in.
It's not uncommon to see private banking relationship decisions made upon 'tangibles' such as the associated prestige of holding an account and having the ‘red-carpet rolled out’, without regard to the 'intangibles' such as the potential conflicts of interest, product range, competency, charges, access or terms on offer.
For wealthy individuals, there's no choice but to be extremely critical about how many private banks (particularly in Dubai) charge and to consider - where one has negotiating power given the level of assets involved - not signing the standard documents that banks put in front of you, but rather to set out your own terms, mandating your advisers to work in a way that makes sense for the wealth-owning family itself.
Now, onto the 7 mistakes to avoid when maintaining your wealth and choosing the right advisers.
This could save you a lot of time, money, and aggravation in the long run.
Mistake #1: Choosing professionals because they are local to you
The best available planners need not be the best available near you.
Do you really need to meet your financial planner face-to-face?
We help clients from all over the world.
A surgeon generally needs to be in the room to do surgery.
Financial or legal professionals don’t need to be in the room to do what they do.
Don’t be afraid to enlist the best you can find — even if they are not on your doorstep.
Mistake #2: "If it ain't broke..."
Just because you've worked with the same adviser for 10 or 20 years, doesn't mean you should continue to do so indefinitely.
There's a high likelihood that, as you have accumulated wealth, your needs have changed.
You could have outgrown your adviser's capabilities and expertise (or their firm's).
And that makes sense.
Many clients choose their advisers when they are just starting out.
They use the adviser their parents or friends use, or hire a friend or family member.
This serves its purpose when there are bigger challenges at hand (like working 20-hour work days to set up your business).
It's the path of least resistance.
Perhaps, understandably, you chose competency and affordability.
Like triage nurses in an emergency room, they don't have to be highly-trained specialists, when all that's needed are some stitches.
This comes back to the 'sunk cost fallacy', where you remain committed to something, even when the opportunity cost (what you are giving up) is so high...
“We've been together so long, I’d hate to change now."
Ask yourself, how did you choose the professional advisers you work with today?
How many other professionals did you interview prior to choosing one?
Have you periodically interviewed others as your needs have changed?
Mistake #3: Never getting a second opinion
Good planners are busy helping clients like you.
They are professionals and will expect to be paid for any analysis they do for you, including a second opinion.
Of course, there are plenty of 'advisers' who will analyse your situation for 'free', hoping to wow you with their insights and recommendations to earn your business.
However, their goal is to sell you something.
The right people won’t need your business, they'll want it.
Treat them fairly by paying for their time and advice.
Never getting a second opinion can be damaging.
Unfortunately, it's also the most common pitfall in this list.
A second opinion is the primary way of identifying planning mistakes or noticeable omissions from your planning.
Just as good physicians encourage patients to get second opinions, good advisors should encourage their clients to do the same.
This is the only way for you to adequately judge an adviser’s performance.
It's amazing how little I see this.
If your life were in jeopardy, wouldn’t you get a second opinion?
Mistake #4: Hiring friends and family
Trust is a huge issue in my profession, and I can’t fault the logic of people who choose friends and family as their advisers.
However, ask yourself, are you willing to jeopordise the relationship to achieve your financial goals?
If not, you should reconsider hiring friends and relatives.
There's nothing wrong with being 'friendly' with your advisers (to a point, remember, this is a professional relationship first and foremost), however, when the relationship starts as a friendship, there can often be problems later when you disagree on a course of action or when the adviser makes a mistake.
Money is an emotion and one of the most powerful forces in our lives.
Adding friends and family to it, complicates it further.
Mistake #5: Not accepting that complexity requires outside experts
If you needed a stent put in your aortic valve, you would not go to a general practitioner.
Medicine is highly specialised.
Seeking a specialist to help you with your health concerns may be obvious.
Your finances are no different.
Think investment, tax, estate planning and retirement planning to name but a few.
Mistake #6: Hiring "yes-people"
Our affluent clients have told us that they have enough yes-people in their lives.
Interestingly, they cherish the moments when my team and I stand up to them and challenge their decisions.
Particularly if we relate these decisions back to potential damage to their plan.
Our successful clients realise that they can’t be experts at everything (see mistake #5).
In some areas, they may have a good level of skill or knowledge.
But they also realise that it would take many years to achieve that level of expertise.
To leverage their time, they choose to hire experts in different disciplines to work for them.
They are likely paying someone less per hour than they earn running their businesses, and the advisers are getting it done in less time.
Mistake #7: A lack of coordination
Even if you have a team of highly experienced advisers in the fields of tax, law, insurance, and investments working for you...
If they are not working together, your plan (and therefore your future) can still fall apart.
We see this all too often.
Investment accounts that are managed like they are in a pension, with no regard for taxation, for example.
Like the radiologist, surgeon, and anesthesiologist, your adviser, lawyer, and tax advisers must work together.
Do any of these warning signs seem familiar?
There is no use in focusing on accumulating more wealth, only to lose it.
This is why you must protect your existing and future wealth.
But which planner should you choose?
Look for professionals who possess appropriate professional qualifications, such as the Chartered Insurance Institute or Chartered Institute for Securities & Investment Chartered Financial Planner or Chartered Wealth Manager designations respectively.
Ask them how they are regulated (and check).
Request that they explain, in plain English, how they intend to manage your money.
Accredited firms will give you an Investment Policy Statement.
Spend time interviewing various planners and don’t be shy about asking them to point to academic work that justifies their investing approach.
With a little bit of work, you should be able to find an organisation that can not only guide you on your financial journey,
But give you a feeling of control, clarity and confidence that you are on track to a bright future.