Yahoo Finance I’m a Financial Planning Expert: Here Are the 6 Biggest Mistakes Even My Wealthiest Clients Make
There’s no way to truly master the art of wealth-building. The rich have gotten good at it — really good — but there’s always room for improvement and even the gurus can make mistakes.
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GOBankingRates spoke with two financial planning experts who advise some of the wealthiest households in America, but even their clients are not immune to the same financial traps that ensnare far less savvy and sophisticated players.
If you’re suffering from low money morale after making a few regrettable blunders in your financial life, don’t worry — unforced errors put you in good company. Keep reading to learn about the monetary missteps that even the rich can’t seem to avoid.
A Wealth Planner Stresses Simplicity, Tax Awareness and Consistent Revision
Jake Claver is a finance expert with a Qualified Family Office Professional (QFOP) certification and is the founder of the wealth management firm Digital Family Office. While average earners and even garden-variety rich people seek out the services of standard financial planners, only the wealthiest households enlist family offices to manage and grow their fortunes.
Claver provides high-level financial planning services like multijurisdictional holding and multigenerational transfer strategies, enterprise mapping, deal sourcing and due diligence. But even though his clients are some of the wealthiest and most sophisticated investors and business leaders in America, they’re vulnerable to the same missteps as regular people who buy ETFs in fractional shares.
“While wealthy individuals have access to more financial opportunities, they’re not immune to making mistakes,” said Claver.
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Over-Complicating Investments
No matter where you fall on the income spectrum, it’s always best to build a portfolio with as few moving parts and as little room for error as possible.
“One common mistake I’ve observed among wealthy clients is the tendency to over-complicate their investment portfolios, believing that complexity equates to sophistication,” said Claver. “This can lead to unnecessary fees, overlapping assets and reduced transparency. Instead, it’s often more effective to keep a streamlined and well-diversified portfolio, which can be just as, if not more, effective in achieving long-term financial goals.”
Neglecting Tax Implications
Building wealth is futile if you do it in a way that forfeits too much of it to the IRS.
“Even the affluent can overlook the tax implications of their financial decisions,” said Claver. “From selling investments at the wrong time to not leveraging tax-advantaged accounts, these oversights can erode their wealth. I always advise clients to work with both their financial planner and a tax professional to ensure they’re making tax-efficient decisions.”
Failing To Review Estate Plans
Whether it’s a common person’s will or a billionaire’s complex web of trusts, it’s imperative to create an estate plan — but unless you update it as your circumstances evolve, it’s not a plan worth having.
“With significant wealth often comes a more intricate estate plan,” said Claver. “Despite its importance, many high-net-worth individuals neglect to review and update their estate plans as life changes. It’s crucial to revisit these plans every few years or after major life events to ensure that assets will be distributed according to their wishes.”
An Investment Director Preaches Charity, Thoughtful Spending and Digital Defense
John Browning, founder and CEO of Guardian Rock Wealth, is a 30-year Wall Street veteran who has held executive-level roles at major firms, including Morgan Stanley, Invesco, Guggenheim and Nuveen. He’s also the author of the Amazon bestseller “Build a Life, not a Portfolio: A Guide to Your Financial Future Based on Your Personal Values.”
As the leader of the investment committee that directs client service and portfolio decisions, he’s seen that even the wealthiest one-percenters are susceptible to some of the same mistakes as ordinary earners with average bank accounts.
Failing To Leverage the Power of Philanthropy in Financial Planning
Research has established direct links between charitable giving and mental and physical wellness — but it can also benefit your portfolio.
“Wealthy clients sometimes delay or underestimate the strategic impact of incorporating philanthropy into their financial plan,” said Browning. “This delay can result in missed opportunities for impactful giving. I encourage clients to integrate philanthropy early in their financial journey. Establishing a donor-advised fund or incorporating impact investing can align their wealth with social responsibility, providing fulfillment and potentially optimizing tax implications.”
Overlooking the Power of ‘Mindful Spending’
Rich people don’t get rich by spending, saving and investing recklessly or haphazardly. But while the wealthy tend to live according to well-laid financial plans, those plans don’t usually treat money as a tool for happiness and fulfillment.
“While many affluent individuals grasp the importance of budgeting, the concept of mindful spending often eludes them,” said Browning. “This involves understanding the emotional and psychological aspects of financial decisions.”
Browning guides even his most fiscally disciplined clients toward “a holistic view of spending that incorporates their values and aspirations,” he said. “Strategies like conscious spending plans prioritize expenditures aligned with personal goals, enhancing the overall satisfaction derived from wealth.”
But this method isn’t unique to the high-earners Browning serves. Saving money where you can so there’s more to spend on the things you truly love is a winning strategy for all income brackets.
Neglecting Digital Legacy Planning
Claver highlighted the importance of regular estate plan maintenance, but in the digital age, no amount of upkeep matters if you leave your heirs locked out of your online financial life.
“In the era of digital assets, wealthy clients frequently overlook the intricacies of digital legacy planning,” said Browning. “This encompasses safeguarding and transferring valuable digital assets, including cryptocurrencies, intellectual property and online account credentials.”
It could be as simple as an online savings account or money trapped in PayPal or your iPhone’s Apple Cash. Either way, you don’t have to be a billionaire to need a comprehensive digital estate plan that leaves your posterity an inventory of your online financial life and the logins, passwords, security questions and permissions needed to access them.
“This involves cataloging digital assets, establishing protocols for their transfer and ensuring heirs have the necessary information to navigate the complex landscape of digital inheritance,” said Browning.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: Here Are the 6 Biggest Mistakes Even My Wealthiest Clients Make
