Choosing the right financial advisor is not something to take lightly, especially if you are an executive in a high-earning position. Your financial goals will vary, as there are many different aspects of your overall financial plan. From retirement planning, wealth management, estate planning, or help with maximizing your executive compensation plan, there is no shortage of financial decisions you will need to make throughout your lifetime.
As an executive, there are many things to consider when searching for a financial advisor. In this article, we will go over the various aspects of finance that executives should pay close attention to, as well as provide insight on how to decide on a top financial advisor to help you meet your financial needs.
Managing wealth takes strategic planning and financial discipline, especially if you are an executive. Because you are likely taking on more responsibility at work, you likely don’t have the time necessary to manage all of your assets at an optimal capacity effectively.
Too many executives have a propensity to overlook effective management of their 401(k) by focusing too much on maxing out contributions and paying no mind to their distribution strategy.
Though maxing out your retirement contributions is a crucial part of effective wealth management, focusing exclusively on that is a pitfall that should be avoided.
Tax-deferred retirement accounts, such as a 401(k) or traditional IRA, are only taxed when you begin taking distributions. Proactive executives may elect to initiate a Roth conversion or backdoor Roth in order to take their distributions tax-free once they do retire.
This strategy is a fantastic way to lower your retirement tax liability, something that too many executives don’t take advantage of. Executives who take advantage of tax-friendly distribution strategies like Roth conversion will be in a much better position when they retire and begin to take distributions from their retirement accounts.
Executives who choose to manage their own money may not have the time or knowledge needed for the level of complexity involved with their wealth management. There are an immense amount of benefits in working with a wealth management firm, including taking advantage of their financial knowledge and the fact that they manage investments for a living, full-time.
Good wealth management firms will bring a level of experience and expertise to the table that will provide you with advanced investment and tax planning strategies you can use to boost your portfolio and reach your financial goals.
Executives should take advantage of the services that wealth management firms provide for their clients and the outside perspective into your portfolio and financial standing. This will provide you with an opportunity to analyze a wide array of financial strategies you otherwise may not have known about.
Finding the right advisor for you and your financial needs is instrumental if you want to reach your financial goals. When deciding on the right financial planner for your needs, you need to ensure that whoever you are considering will provide specific services:
● Retirement planning
● Estate planning
● Executive compensation management and advice
● Investment planning
Effective financial planning is a serious undertaking, often structured for decades in the future. As an executive in a high-earning position, the need for sophisticated financial planning becomes more urgent.
Working with a CERTIFIED FINANCIAL PLANNER™ to meet your financial goals is an excellent step to take. Financial professionals on the Brown | Miller team are held to a fiduciary standard and understand the needs of their executive clients extremely well; executives bring different needs and situations to the table that require a higher level of understanding of financial knowledge and tax planning.
All advisor-client relationships should aim to be long-term from the beginning and come with high expectations. Since you bring a higher level of income and more assets to the table, the need for advanced financial planning and high-end concierge services becomes much more prevalent.
Choosing the right financial advisor will profoundly affect your investments and retirement planning. When considering prospective financial planners, you must first determine your most pressing needs and goals. Perhaps as an executive earning a high income, you need tips on making more profitable investments. Different advisors will specialize in different areas of finance and will be much more suited to your financial needs.
Make sure you do your own research on how the advisors you are considering are compensated, as different advisors will have different fee structures and compensation models, which can be a determining factor when deciding who to work with.
Understand how fiduciary duty works and how not all of the advisors that you may be considering are bound by it.
Executives may not have the time required to strategize their investment and tax strategies due to the intense demands of the nature of their work. This is why executives should consider working with a CERTIFIED FINANCIAL PLANNER™ professional to help them meet their financial goals.
What makes a CFP® professional different from other financial planners is their requirement to pass the CFP® exam, as well as their ongoing education requirements. CFP® professionals are also bound to
the CERTIFIED FINANCIAL PLANNER™ Board Code of Ethics and Standard of Conduct. A CFP® professional is held to a higher standard than other advisors, and they have strict requirements to meet that standard.
There is also an additional requirement for CFP® professionals to log 6,000 hours of professional experience that directly relates to the financial planning process. This experience requirement truly separates CFP® professionals from other advisors. Their higher standard of ethics ensures that they will act as a fiduciary who has your best interests in mind.
The biggest disparity between a CFP® professional and a financial advisor is that a CFP® professional must be certified, have the necessary years of experience, and meet the continuing education requirements. Of course, they are also held to a fiduciary standard. On the other hand, advisors do not require any specific credentials, as it is an umbrella term that constitutes a wide array of various types of advisors.
You can always check your advisor’s CFP® professional status on the CFP Board website to ensure transparency.
Compensation plans for executives have continued to increase in complexity as companies have tried to balance sturdy executive pay structures that everyone can agree on. The resulting effect has been a wide variety of base salaries, both long and short-term incentives, company equity, and severance packages.
This has only increased the need for comprehensive wealth management for executives. As compensation packages continue to evolve in complexity, there is more of a need for experienced wealth management.
When it comes to your compensation plan, remember:
● Have a clear understanding of your current financial standing
● Understand how your compensation plan works and its benefits
● How does your compensation plan fit into your larger financial plan, and how are you planning to maximize its benefits?
Take the necessary time to review your investments and other assets to ensure that your risk profile is up to date and your investments are meeting your expectations. It is crucial to do regular checkups on your finances, especially after big life events, such as marriage and divorce, large wealth fluctuations, the birth of your children, and any subsequent significant
events involving them. Working with a CFP® professional from Brown | Miller can help you manage your plan and update you on any notable changes from the plan or within the financial world.
Working with a wealth management firm can help structure your retirement income appropriately so that your earned income from retirement accounts and Social Security is used efficiently, and your deferred payout is optimized so that you can maintain your lifestyle comfortably in retirement.
Your financial plan has many moving parts, and working with an experienced advisor is a great way to merge these moving parts into an efficient all-around financial plan. Knowing what your compensation plan is comprised of is one thing, but knowing the best way to tie everything together with the rest of your financial plan is an entirely different skill set that an advisor can help you with.
Everyone wants to pay as little taxes as possible, so understanding the best tax strategies is absolutely necessary for executives who want to reduce their tax liability. The right tax strategies may result in you lowering your tax burden significantly, which means you may have more money to put toward retirement, investments, and savings.
A fantastic way to lower your tax burden is to maximize your contributions toward your retirement accounts, like traditional and Roth IRAs and 401(k)s. Maximizing your retirement accounts both bulks up your retirement funds while also reducing your tax liability.
Choosing the right advisor to work with comes with many benefits, including:
● Advanced tax planning strategies
● Knowledge of the best distribution strategies for retirement income
● Ways to lower your tax burden while you are still working
● Retirement planning and investment advice
The advisors at Brown | Miller understand tax planning strategies and can ensure that your investments and retirement accounts are set up in the most tax-friendly way.
Charitable donations are another excellent way for executives to reduce their tax liability. Any tax-deductible donations you make towards a qualified charity must be documented and itemized for it to work. When donating, you can generally deduct up to 60% of your AGI (adjusted gross income) from your donations to eligible organizations. This amount may be closer to 20-50% depending on the nature of your contribution and the charity you choose to donate to, as different organizations will have different rulesets.
Tax loss harvesting is another strategy executives can use to lower their taxes. The strategy works when investors intentionally sell investments at a loss and then use that loss to offset any taxes owed on another investment they hold that was sold at a profit; using the capital loss to offset the capital gain, with any residual loss offsetting up to $3,000 of ordinary income.
Tax loss harvesting is a tax deferral tactic, and does not eliminate any taxes. Since it can be tricky to determine if the strategy is right for your situation, consider consulting a CFP® professional to determine what the appropriate strategy should be for your situation.
Finding the right wealth management as an executive is crucial to optimizing your investments. Choosing the right firm is going to depend on your current financial situation, your needs and goals, and what kind of pay structure you are comfortable with.
When choosing the right wealth management firm in Northern Virginia, the first thing that you need to decide on is what you need guidance and tips for.
Different advisors will specialize in different financial services, including investment management, retirement planning, tax strategy, and estate planning. As an executive, you may also have questions regarding your executive compensation plan, and there are certainly advisors who can help with structuring and maximizing those benefits as well.
Different advisors will operate under different pay structures, and as an executive looking to maximize their benefits and investments, you need to settle on an advisor whose compensation plan aligns with your needs.
Advisors will be paid in one of three ways, and understanding how each of them works is crucial when deciding on a prospective advisor to work with. Advisors will be paid in one of the following ways:
● Commission-based advisors earn their pay by selling financial products and investments to their clients. Commission-based advisors are generally paid by the third-party companies that provide the investments and products being sold to you. Many investors are attracted to these types of advisors because the commission they are paid does not come out of their account, and the financial institution pays the advisor. However, this can also mean that your advisor does not have your best interests in mind. These advisors are not bound by any fiduciary duty to their clients, meaning there could be a conflict of interest.
● Fee-only advisors charge their clients an annual, hourly, or flat rate fee for their services. Their fees are a percentage of your assets, which they typically manage and grow.
● Fee-based advisors receive their compensation from a combination of both fees and commissions. These advisors can either charge management fees to manage funds or earn a commission on an investment, product, or a combination of both. They bring a wide array of options to the table and offer their clients several options.
This article is intended for informational purposes only, and not to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally.
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