3 Costly Mistakes the Super Rich Don’t Make
Be crystal clear about what you want your wealth to accomplish and don’t lose sight of those goals.
Avoid financial advisors who don’t have what it takes to help you—or worse, who seek to actively harm your financial future.
Engage in regular financial checkups—and get a second opinion whenever you feel uncertain.
The self-made Super Rich—those with a net worth of $500 million or more—aren’t immune to making mistakes with their wealth. But we find that they do tend to avoid certain crucial errors that might otherwise impact their bottom lines and financial futures.
These mistakes can trip up investors and families at any level of wealth. The upshot: You can potentially do yourself and your wealth a big favor by learning what the Super Rich don’t do with their money!
Here are three of the biggest financial blunders that the Super Rich consistently sidestep.
Mistake #1: Losing Sight of Goals
The Super Rich (those with a net worth of $500 million or more) often establish family offices to address their financial and personal objectives. These family offices are extremely adept at helping Super Rich families develop and spell out their goals and even broader philosophies about wealth and values. They might, for example, craft a family vision statement that summarizes the family’s optimal outcomes and reasons for wanting them, followed by a mission statement, and, finally, plan with clear steps to realize that vision.
From there, all decisions about wealth would be made only after considering the family’s vision, values and action plan. By having systems in place to keep them from losing sight of their key goals, the Super Rich do a superior job of not chasing "hot“ investments.
That's not to say the Super Rich are entirely rigid with their wealth planning. In order to adapt to changing circumstances—family needs, for example—high-functioning family offices are designed to be quite flexible. When goals change significantly enough, adjustments are made.
The lesson: Be very clear about what you want to accomplish. While it’s important to be flexible, any adjustments should be deliberate—if that shiny new investment "opportunity” that has nothing to do with your financial goals, values and philosophy, it’s probably best to steer clear of it.
Mistake #2: Working With Subpar Professionals
The Super Rich (those with a net worth of $500 million or more) know that a lot of professionals are vying to do business with them. They also know that not all of those professionals are worthy of consideration. Here’s who they avoid:
Pretenders—professionals with good intentions who lack technical capability, especially when it comes to sophisticated solutions. Pretenders might care deeply about helping you, but can be unaware of their limitations.
Predators—criminals looking to use their guile and cunning to rob you of your wealth. One very bad example of this is a Ponzi scheme. In this article on NASDAQ, I discuss how you can potentially avoid this type of situation.
Exploiters—very smart professionals who often promote complex, legally aggressive financial solutions that may not prove viable. While these solutions are permissible, there’s a good chance that they’ll explode on you at some point down the road. Exploiters promote these solutions because they put a lot of money into their own pockets.
It can be hard to separate the good from the bad. So how do the Super Rich identify and avoid these three types of "professionals"? The most successful family offices take certain steps to help confirm they are working with consummate professionals (see Exhibit 3).
For starters, the Super Rich gravitate to leading authorities. Whether for senior management positions or as external providers, the objective is to work with recognized experts—industry thought leaders.
They also rely heavily on referrals. The best referrals often come from the high-quality professionals they’re currently working with. High-quality professionals tend to know other industry professionals. Example: A top money manager likely knows elite wealth planners and leading insurance specialists.
Finally, they're willing to pay for results. While the Super Rich make a concerted effort to minimize costs, they’re not going to forgo desired results simply because pursuing those results might require them to spend some money. The Super Rich understand that it’s important to assess a provider’s ability to deliver value, not just his or her stated fee or price schedule.
The lesson: Avoid pretenders, predators and exploiters. Look instead to leading authorities and thought leaders, and solicit referrals from high-caliber professionals you trust.
In my book, Liquidity and You, I discuss how you or your wealth manager can coordinate a team of high-caliber professionals for you.
Mistake #3: Failing to Get Second Opinions and Do Stress Tests
The Super Rich are fully aware that the professionals they hire can make mistakes, which is why they rely on second opinions and stress testing.
Ideally, a second opinion occurs before an action is taken. Example: If a single-family office is considering a particular tax mitigation strategy, its senior management might get a second opinion from another noted leading tax authority to be certain about the validity and viability of the tax strategy. Second opinions are commonly sought whenever there is any question or any sense of uncertainty, as described in Forbes. That said, second opinions can be done at any time. Many investors (both Super Rich and otherwise) get second opinions about their financial strategy if they're worried that they might not be on the right track—or that the professionals they’ve enlisted aren’t up to snuff.
Stress testing is when the Super Rich turn to trusted professionals to evaluate an existing strategy. Outcomes are examined in a number of hypothetical scenarios to make sure the strategy remains both viable and valid. For many of the Super Rich, stress testing is like an annual medical checkup. Something doesn’t have to be wrong, but it’s a very good way to catch a problem before that problem becomes severe.
The lesson: No matter your level of wealth, getting a second opinion when you’re even slightly unsure or uncomfortable is usually worthwhile. Additionally, performing regular stress tests on your planning and investment portfolio can help you avoid problems now and in the future.
By and large, the self-made Super Rich have proved that they know what to do—and what not to do—to create, grow, and maintain sizable wealth. Being clear on your objectives, hiring competent, trustworthy professionals, getting second opinions, and performing stress tests can help you dodge major pitfalls, and put your in the best possible position to join their ranks.
To get started, consider seeking a second opinion about the current state of your finances and how effectively they‘re being managed. A comprehensive review of where you are today and where you want to be can shed light on gaps in your strategy. You may find it’s time to hire experts who will truly add value to your life—and the lives of those you care about most.
We get asked all the time if this is something we can assist with—and the answer is a strong yes provided we know we can add value for a particular individual or family. Contact AG Asset Advisory to get a second opinion and discuss stress testing your plan. We can help.
Anthony Glomski is Founder and Principal of AG Asset Advisory (AGAA), an SEC-registered family office. Some of the information, data, and opinions contained herein were not authored by AGAA and do not constitute investment advice. Content is provided solely for informational purposes only and therefore is not an offer to buy or sell securities, and is not warranted to be correct, complete, or accurate. Additionally, neither the author nor AGAA are engaged in rendering legal, medical, accounting, financial, consulting, coaching, or other professional service or advice in specific situations. This publication should not be utilized as a substitute for professional advice in specific situations. Neither the author nor AGAA may be held liable in any way for any interpretation or use of the information in this publication. Investing carries an inherent element of risk, including the risk of losing invested principal. Past performance is not indicative of future results.
Portions of this article came courtesy of my friends and colleagues at AES Nation, LLC.
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