How Does a Financial Plan Work When You Have Too Much Money?

How Does a Financial Plan Work When You Have Too Much Money?

February 15, 2018

For most people who have important financial goals and life ambitions, financial planning is essential. Without planning, there is no way to know what it will take to achieve these goals, which means they are not likely to be achieved. A financial plan provides the framework for all important money decisions so your money can be designed towards achieving your goals on time. You would think that the more money you have, the less you have to worry about how much easier it would be fulfilling your dreams. In reality, the opposite is true. Like the famous lyrics go: “More money, more problems”. The more money you have, the greater the number of complexities you have in your plan. As your wealth increases, so do the risk exposures that can take your wealth away.  

Complex Goals Require Complex Planning

Consider this: as your wealth increases, your financial goals are likely to change. While you may already have the house of your dreams and you feel your retirement is secure, there may be other important goals you want to achieve. For example, as often happens with people of wealth, they start to think in terms of a greater purpose for their money or using their wealth to pursue philanthropy or a family legacy. That assumes they manage to preserve and grow their wealth, which is not an automatic when you consider all of the ways it can be depleted, including high taxes, market volatility, inflation, overspending and liability claims.  

Coordination and Collaboration Are Keys to Financial Success

When you have a lot of money, it takes more tools and much more coordination among advisors from various planning disciplines to design and implement a financial plan. For example, if your goal is to increase your philanthropic activities while maximizing your family legacy, your financial plan would need to address several key issues, including taxation, wealth preservation and distributing your estate when you’re gone. That would involve at least three different advisors from three different planning disciplines – a CPA for taxation; an investment advisor for wealth preservation and an estate attorney for estate distribution. It would probably also require a insurance specialist to create and implement a insurance plan and a broker to find the most efficient form of insurance coverage.   

Suddenly, your advisory team consists of five or six different advisors, each responsible for a different piece of your financial puzzle. However, each of these advisors works within their own area of expertise, which limits their view of the big picture. They can’t see what the puzzle is supposed to look like when the pieces come together. For that, you need someone with the planning expertise to not only understand the role of each member of your advisory team; but who also has the planning vantage point to see the big picture and to ensure the all of the pieces fit together. You need a quarterback for your advisory team who understands what you are trying to accomplish and has the skills and expertise to run the team as a coordinated unit for the purpose of achieving your goals. For that you need an independent, fiduciary Certified Financial Planner™ professional (CFP®) - like myself. 

The True Value of a Certified Financial Planner™ professional

A CFP® professional is the only type of financial advisor who has the requisite knowledge to help you create the financial plan that encompasses all of the necessary planning disciplines. He or she knows what pieces are needed to complete the puzzle and how to get them to fit. For example, if the goal is to maximize your philanthropic activities, while maximizing your family legacy, your financial plan might include. 

  • A tax diversification strategy to minimize taxes on distributions made to charities and for personal income – to be developed in concert with a CPA 
  • An investment plan to maximize portfolio stability while generating appropriate, risk-adjusted returns – to be developed in concert with an investment advisor 
  • An estate distribution plan to minimize estate tax consequences while preserving the estate for a family legacy – to be developed in concert with an estate attorney 
  • Charitable gifting solutions to maximize the value of current and future charitable gifts while maximizing current and future tax benefits – to be developed in concert with a charitable giving specialist 
  • An insurance plan to find the most efficient ways to transfer or mitigate financial risk – to be developed in concert with a risk management specialist 

To achieve this particular goal with the best possible results, it requires the expertise of each of these advisors working collaboratively. Sound expensive? It can be. However, the more money you have, the more you stand to lose through unnecessary taxation, poor or expensive money management, risk exposure and inefficient gifting strategies. With a well-conceived and effectively coordinated financial plan, you are much more likely to come out ahead.