Working as a financial advisor (FA), it's common to hear retail consumers give reasons such as return too low, too long term, lock up money, expensive as a justification why they prefer to keep cash or invest on their own.
Ever wondered why if all the above is true, then how come high income earners and high net-worth (HNW) people still work with FAs despite this?
Other than the obvious that they probably have more disposable resources, surely there must be other reasons?
After all, how much financial growth you make is simply a percentage of your initial investment. If retail consumers have a super sound way of growing wealth, then high income earners or HNW simply will achieve an inflated return using the same approach. However, if one is still stuck in the rat race and those with more disposable resources actually outsource a portion of their financial management, then maybe there's a perspective they see that others don't.
1. They are spending their resources to buy time
Which intelligent or educated person doesn't know inflation exist? Most people understand that inflation basically means an erosion of spending power for the resources left unspent today. High income earners know this too. Hence, they would definitely want their resources to work harder.
To do this, they can either invest on their own or get someone to do the work for them. Having worked with multiple high achievers, many of whom are my personal friends, I can confidently tell you that if these people want to learn how to invest their money well, they can do so. They have the resources to hire the right mentors to teach them and they have the intellect to execute the strategies learnt as well. However, learning a new craft involves time. Not everyone's favourite past-time is to be Warren Buffett or Ray Dalio. This is why they rather outsource the work to someone else.
In exchange, they get to use the free-time to spend with their children, their spouse, their parents and even their friends. They work hard to earn their high incomes in their respective specialisations and they have no aspiration to take up another part-time job (investor) to earn more money.
Of course, this industry has stigma. It's pretty easy to get burnt if you work with the wrong person. Hence, many of these individuals look for someone reliable through word of mouth, mainly from their own social networks who also have the same needs and problems.
2. Premium Waivers
Most financial solutions that is linked to an insurer has premium waiver riders that can be attached to these solutions. A high income earner may have the resources to regularly pump into an investment and as mentioned earlier, he or she may be good at it.
However, even the most talented individuals have no control over when they fall sick. A young high income earner in his late 20s might be able to retire if he continues to invest regularly through out his working years. He may even be able to retire by 50 if he invests a lot. However, he may fall seriously ill at 40 and not be able to continue at the same stress levels that command his huge pay check. In that case, he wouldn't have the excess resources to plough into his investments thus derailing his early retirement plans.
When investing with instruments with premium waivers, the insurer continues to contribute the invested premiums for the insured when a claim is made. This way, high income earner can continue to reap the fruits of his investments even though he lost the means to earn a similar income. His early retirement plans would thus remain on track.
3. Expertise & Exposure to new ideas
High income earners may invest a portion of their funds on their own such as through instruments like property, stocks, ETFs, even cryptocurrencies. However, they tend to diversify and have a portion managed with a reliable and highly competent FA as well. Sometimes, investment returns outsourced may be better. Other times, they are using resources to network and buy information.
Leveraged endowments is something that many retail consumers and even high income rising affluent are not very aware of. For example, a high income earner who already has 2 properties and is unwilling to pay ABSD for his third property might be interested in such an option to further grow his wealth and diversify his portfolio. My client who found it such a hassle dealing with tenants of his rented property loved the idea but he didn't know such a concept existed prior to meeting me.
A good FA's job is not simply to market solutions. In my opinion, a good FA's job is also to educate and help clients open up perspectives unknown to them. Leveraged endowments is simply an example. There are other means to unlock money from existing assets which many high income individuals are not aware of and this is why many of them still work with high calibre FAs to get this exposure and expertise.
Read also: 3 Occasions I Would Sell My Investment
4. Legacy and Estate Planning
Sometimes, when an individual is excellent in growing money, it seems like life can have no problems. However, what if nobody else in the family tree has similar acumen? What happens when the person becomes incapacitated or is dead?
In this case, it's a story of a Crypto Exchange CEO who died with his passwords. Most of us are just everyday people but we may hold investments in various capacities especially if we have the means to do so... would our family members know when to sell or how to sell these assets?
What happens in between?
Estate planning is more than simply an allocation of assets. Sometimes structures are put in place to ensure the asset continues to grow in the form of a trust even after inheritance especially when there are minors in the picture.
Property inheritance may appear simple and straight forward especially when a will is in place. However, there maybe other implications for those inheriting the properties such as a young adult losing their right to purchase a marital HDB flat if they inherit a part ownership in their parent's bungalow especially if their other parent is still living inside and they can't sell the home.
Often retail consumers may assume the law works a certain way but the assumption may not be accurate. The more assets one has, the more considerations there might be. High income earners typically have spent a lot of effort and time building up their legacy, hence it is in their best interest to ensure that their gift of love is disbursed and managed according to their wishes in a well considered manner.
Summary
In short, being HNW or a high income earner simply means this person is highly competent in their own area of expertise. It also means the person is considerably smart. However, financial management is a specialization on its own. When assessed beyond the simplicity of product paddling and basic insurance coverage, there's a deeper more complex specialized knowledge that is applicable to individuals with growing resources.
Working with a competent specialized professional in this field helps many high income earners to avoid pitfalls of uninformed decision making and financial blind spots due to flawed assumptions.
After reading this article, you may have some questions or may want to get started on a financial planning. You can reach me by dropping me a message. Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about financial planning. About Janice I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning. Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here. I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram. Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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