Category: Blog

After working with families who have accumulated substantial wealth, I’ve learned that the way you structure your portfolio matters as much as what’s in it.

The mutual fund versus individual stock question isn’t just about performance. Investors with significant assets need to figure in taxes, control, flexibility, and how efficiently their money compounds over decades.

Let me walk you through what actually matters when building portfolios at this level.

The Tax Reality That Changes Everything

Start with taxes, because this is where many investors leave money on the table.

According to research from Bernicke & Associates, mutual funds create tax liabilities you can’t control. When a fund manager sells appreciated stocks, all shareholders pay capital gains taxes proportionally, even investors who just bought in and never benefited from those gains.

You’re essentially paying taxes on someone else’s profits.

Individual stocks work differently. You decide when to sell. You control when capital gains get triggered. According to Finley Davis Private Wealth research, this control becomes particularly valuable for high-net-worth investors who can strategically time sales to minimize tax impact.

The step-up in basis at death eliminates tax on previously earned gains for your beneficiaries. That benefit applies to individual stocks held at death, not to mutual fund distributions you’ve already paid taxes on.

Cost Differences That Compound

According to the Investment Company Institute, the average actively managed stock fund charges 0.50% annually. Index funds average 0.06%.

Individual stocks held at most national brokerages cost nothing annually. Zero ongoing fees.

Over 20 or 30 years, that difference compounds significantly. For every $1 million invested, you’re paying $5,000 annually in a typical actively managed fund. That’s $100,000 over 20 years, not including market growth on those dollars.

The math matters when you have substantial assets.

Tax Loss Harvesting and Direct Control

According to BlackRock research on high-net-worth tax strategies, individual stock ownership enables ongoing tax-loss harvesting throughout the year.

You can sell positions showing losses to offset gains elsewhere in your portfolio. This shouldn’t be an annual exercise. It’s something you can do strategically whenever market conditions create opportunities.

Mutual funds don’t offer this flexibility. The fund manager makes all buy and sell decisions. You have no ability to harvest losses or control the timing of gains.

According to research from Finley Davis Private Wealth, direct indexing enables investors to purchase individual stocks that comprise an index while allowing customized tax management. You get diversification benefits plus the ability to harvest losses and manage capital gains more effectively than traditional index funds.

The Diversification Question

Mutual funds provide instant diversification. That’s their primary selling point.

According to financial experts at U.S. News & World Report, mutual funds are baskets of stocks that can include hundreds of different holdings, offering more diversification than individual stock picking.

The counterargument: financial experts recommend holding at least 15 individual stocks to achieve adequate diversification. With zero-commission trading and the ability to buy fractional shares, building a diversified portfolio of individual stocks is more accessible than ever.

There is now the ability to build a diversified portfolio of individual stocks without the barriers that existed in the past when commissions and minimum purchase requirements made this approach impractical for most investors.

Active Management Reality Check

According to Bankrate research, actively managed funds have typically underperformed passive funds over long time periods, despite charging higher fees.

The promise of active management is that professional fund managers will outperform the market through superior stock selection and timing. The reality doesn’t consistently support that promise.

According to data compiled by NerdWallet, even with the best expertise, actively managed investments rarely beat the market over the long term.

When Mutual Funds Make Sense

Mutual funds aren’t inherently wrong. They serve specific purposes effectively.

Mutual funds work well for investors who want fund managers to handle all research and management decisions, don’t have time to monitor individual stocks, and prefer a more hands-off approach to investing.

For retirement accounts like 401(k)s and IRAs, where tax consequences matter less, mutual funds provide an efficient way to gain diversified exposure.

The issue is using them in taxable accounts, where the tax inefficiency becomes expensive over time.

The Wealthy Investor Approach

According to research by Cerulli on high-net-worth markets, tax minimization is as important an objective for wealthy clients as wealth preservation.

BlackRock research on after-tax allocation strategies confirms that high-net-worth investors who hold most of their assets in taxable accounts need portfolios designed to deliver optimal after-tax returns.

What that typically means in practice:

Tax-advantaged retirement accounts can hold mutual funds or index funds. The tax protection of these accounts eliminates the primary disadvantage of mutual funds.

Taxable accounts benefit from individual stocks or tax-efficient ETFs. This is where you want maximum control over the timing of gains and the ability to harvest losses throughout the year.

Portfolios are usually structured to meet multiple goals, including long-term growth, capital preservation, tax efficiency, and estate planning.

Risk Management at Scale

High-income individuals often face marginal tax rates exceeding 37%, making every percentage point of tax efficiency meaningful.

Individual stocks allow you to be strategic about which positions you hold long-term and which you rotate based on market conditions and your tax situation in any given year.

Mutual funds make these decisions for you, regardless of whether the timing works for your specific tax circumstances.

The Liquidity Factor

According to Kiplinger’s analysis, stocks can be bought and sold at any time during market hours, providing greater liquidity. Mutual funds typically trade once daily at net asset value, making them slightly less flexible for immediate transactions.

When you need to raise cash or rebalance, individual stocks provide more precision and control.

Estate Planning Considerations

For investors focused on wealth transfer, the structure matters.

According to SmartAsset research, concentrated stock positions are common among wealthy individuals who built wealth through a single company, whether from founding a business or accumulating shares over years of employment.

These concentrated positions require specific management strategies. You can’t effectively manage concentrated positions inside mutual funds. You need the flexibility that comes with direct ownership.

Building Your Approach

Neither approach is universally better. The proper structure depends on your specific situation.

Consider individual stocks in taxable accounts if you have substantial assets, care about tax efficiency, want control over timing of gains and losses, and are willing to work with an advisor who actively manages these positions.

Consider mutual funds or index funds if you’re investing primarily in tax-advantaged retirement accounts, prefer a completely hands-off approach, or don’t have enough assets to make individual stock tax management worthwhile.

Many sophisticated portfolios use both. Mutual funds in retirement accounts where tax efficiency doesn’t matter. Individual stocks in taxable accounts are where every bit of tax savings compounds over time.

What This Means for You

According to BlackRock research, two-thirds of high-net-worth advisory teams highlight tax minimization as a key offering for their clients.

That emphasis exists for good reason. At significant asset levels, the difference between tax-efficient and tax-inefficient portfolio structures can mean hundreds of thousands of dollars over a lifetime.

The mutual fund versus individual stock decision isn’t about picking winners or timing the market. It’s about structuring your portfolio so you keep more of what you earn.

That requires understanding the tax implications, costs, and control factors that separate these approaches. It requires working with advisors who think beyond just performance numbers to consider after-tax returns.

Your investment approach should match your circumstances. At substantial asset levels, that means being strategic about where you use mutual funds and where individual stock ownership provides better long-term results.

Take the time to understand these differences. The structure of your portfolio will shape your results as much as the individual investments you choose.

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor.

  

Sources:

1. Bankrate. “Mutual Funds Vs. Stocks: Which Should You Invest In?” April 28, 2025. https://www.bankrate.com/investing/stocks-vs-mutual-funds/
2. U.S. News & World Report. “Mutual Funds vs. Stocks: Which Are Better Investments?” April 16, 2024. https://money.usnews.com/investing/articles/mutual-funds-vs-stocks-which-are-better-investments
3. SmartAsset. “Pros and Cons: Mutual Funds vs. Stocks.” July 28, 2021. https://smartasset.com/investing/mutual-funds-vs-stocks
4. Kiplinger. “Stocks vs Funds: Six Different Ways They Impact Your Portfolio.” May 23, 2025. https://www.kiplinger.com/investing/stocks-vs-funds-different-ways-they-impact-your-portfolio
5. Farm Bureau Financial Services. “Mutual Funds vs. Individual Securities.” June 27, 2022. https://www.fbfs.com/learning-center/mutual-funds-vs-individual-securities
6. Bernicke & Associates. “Four Advantages Of Owning Stocks Over Mutual Funds Or ETFs.” December 20, 2022. https://www.bernicke.com/four-advantages-of-owning-stocks-over-mutual-funds-or-etfs/
7. SmartAsset. “ETF vs. Stock vs. Mutual Fund: What Are the Differences?” May 16, 2025. https://smartasset.com/investing/etf-vs-stock-vs-mutual-fund
8. NerdWallet. “Mutual Funds vs. Stocks: What’s the Difference?” August 21, 2025. https://www.nerdwallet.com/article/investing/invest-stocks-etfs-mutual-funds
9. Henssler Financial. “Mutual Funds vs. Individual Stocks in the Modern Investment Landscape.” November 29, 2023. https://www.henssler.com/mutual-funds-vs-individual-stocks-in-the-modern-investment-landscape/
10. InCharge Debt Solutions. “Stocks vs. Mutual Funds: What Are The Differences?” March 18, 2025. https://www.incharge.org/blog/are-blue-chip-stocks-a-better-option-than-mutual-funds/
11. BlackRock. “High Net Worth Tax Strategies.” https://www.blackrock.com/us/financial-professionals/investments/products/managed-accounts/high-net-worth-tax-strategies
12. Finley Davis Private Wealth. “Tax-Efficient Investment Strategies for High-Net-Worth Investors.” December 16, 2024. https://finleydavis.com/articles/tax-efficient-investment-strategies-for-high-net-worth-investors/
13. BlackRock. “After-tax allocation strategies for high-net-worth clients.” https://www.blackrock.com/us/financial-professionals/insights/after-tax-allocation-strategies-for-high-net-worth-clients
14. Kimlinger. “2025-2026 Tax Brackets and Federal Income Tax Rates.” https://www.kiplinger.com/taxes/tax-brackets/602222/income-tax-brackets#:~:text=Sign%20up%20for%20Kiplinger’s%20Free%20Newsletters&text=Profit%20and%20prosper%20with%20the%20best%20of%20expert%20advice%20%2D%20straight,rate%20applicable%20to%20that%20bracket.
15. SmartAsset. “14 Investing Strategies for High-Net-Worth Individuals.” April 10, 2025. https://smartasset.com/investing/high-net-worth-investing
16. Beacon Global Wealth Management. “Why Tax-Efficient Structures Are Crucial for Ultra-High Net-Worth Wealth Management Clients.” https://www.beaconglobalwealth.com/blog/ultra-high-net-worth-wealth-management
17. Bloomberg/BlackRock. “Keep More of What You Earn: Adding Tax Alpha to Portfolios.” December 2, 2024. https://sponsored.bloomberg.com/article/blackrock/keep-more-of-what-you-earn-adding-tax-alpha-to-portfolios
18. Cooke Wealth Management. “Tax-Friendly Investment Strategies for High Net Worth Individuals.” July 4, 2024. https://www.cookewm.com/blog/investment/strategies/high-net-worth-individuals
19. Holborn Assets. “Top 5 Wealth Management Strategies for High-Net-Worth Individuals.” November 4, 2024. https://holbornassets.com/blog/wealth-management/top-5-wealth-management-strategies-for-high-net-worth-individuals/

Working with a personal financial advisor can be one of the most impactful decisions you make for your family’s financial future. However, choosing the right advisor is more complex than you might think.

Over the years, I’ve met with families who spent more time researching their last car purchase than they did selecting the advisor who manages their retirement savings. Others picked an advisor based solely on a referral from a friend without considering whether that person was actually a good fit for their specific situation.

The truth is, not all financial advisors offer the same services, follow the same standards, or work the same way. Understanding these differences before you commit to a relationship can save you significant money, stress, and disappointment.

According to Northwestern Mutual’s Planning & Progress Study, people who work with an advisor have significantly higher confidence levels across multiple areas. Those with advisors are 31 percentage points more confident about handling unexpected expenses, 29 points more confident about retiring when planned, and 28 points more confident about achieving long-term financial security.

However, the same research found that only 37% of Americans actually work with a financial advisor, even though two-thirds believe their financial planning needs improvement.

The gap between needing help and getting it often comes down to not knowing how to find the right advisor. Let me walk you through a practical approach to making this important decision.

Understanding What You Need

Before you start looking for a personal financial advisor, take time to think about what you need help with. This clarity will guide your entire search.

Common Services Advisors Provide

Financial advisors can help with different aspects of your financial life:

• Investment Management involves creating and maintaining an investment portfolio aligned with your goals and risk tolerance. This includes asset allocation, rebalancing, and monitoring performance.
• Retirement Planning focuses on ensuring you have sufficient savings to maintain your lifestyle through retirement. This includes projecting future needs, optimizing savings strategies, and planning Social Security timing.
• Tax Strategy coordinates your financial decisions with tax implications. According to NerdWallet, some advisors have specific tax expertise or hold CPA credentials, which can be valuable for complex situations.
• Estate Planning helps protect your assets and ensure your wishes are carried out. While attorneys typically handle the legal documents, financial advisors coordinate the overall strategy.
• Business Owner Planning addresses the unique needs of entrepreneurs and business owners, including succession planning, business valuations, and coordinating business and personal finances.

When You Need More Than Basic Advice

Your needs become more complex as your financial life evolves. You might benefit most from professional guidance when you’re facing major life changes like buying a house, starting a business, approaching retirement, or dealing with an inheritance.

Business owners often discover that managing business and personal finances requires coordination most people aren’t equipped to handle alone. Medical professionals, whether dentists or physicians, face specific challenges around practice valuation, retirement timing, and managing irregular income.

Types of Financial Advisors

Understanding the different types of advisors helps you know what to look for.

Traditional Personal Financial Advisors

Traditional advisors provide comprehensive, personalized financial planning and investment management. They work closely with clients to understand unique situations and develop customized plans. They offer high levels of personalization, expertise across various financial matters, and emotional support during market volatility.

This is the model we follow. The relationship is built on understanding your complete financial picture and providing guidance that coordinates all aspects of your financial life.

Robo-Advisors

Robo-advisors use technology to manage investments through automated portfolio management. These platforms can work for people with straightforward needs who want low-cost investment management. However, they don’t provide the comprehensive planning, tax coordination, or emotional support that human advisors offer.

Hybrid Models

Hybrid advisors combine automated investment management with access to human advisors for specific questions or periodic consultations. They typically cost more than pure robo-advisors but less than traditional advisors.

Credentials Matter

Not all financial advisor credentials are equal. Understanding what various designations mean helps you evaluate qualifications.

Certified Financial Planner (CFP)

The CFP designation is the gold standard for comprehensive financial planning. CFP professionals have completed extensive training, passed rigorous exams, and committed to ongoing education and ethical standards including fiduciary duty.

CFP professionals must adhere to fiduciary standards, meaning they’re legally obligated to put your interests first. This is significant and differentiates them from many other financial professionals.

Chartered Financial Analyst (CFA)

CFA charter holders have deep expertise in investment analysis and portfolio management. There are tests and certifications they must pass, as well as thousands of work hours required in investment decision making experience. This designation indicates strong analytical skills and investment knowledge.

Other Designations

Various other credentials exist, from Chartered Financial Consultant (ChFC) to specialized certifications. The key is understanding what education, testing, and ethical standards each requires.

As Consumer Reports notes, almost anyone can call themselves a financial advisor, which is why verifying credentials matters.

The Fiduciary Standard

This is perhaps the most important distinction to understand when choosing a personal financial advisor.

What Fiduciary Means

Fiduciaries are legally required to put your interests ahead of their own. According to the Securities and Exchange Commission, this includes both a duty of care and a duty of loyalty.

The duty of care means thoroughly understanding your situation before making recommendations. The duty of loyalty means not placing the advisor’s interests above yours.

Not All Advisors Are Fiduciaries

Here’s where it gets complicated. Not all financial advisors operate as fiduciaries all the time.

According to Bankrate, many advisors are “dually registered,” meaning they can act as fiduciaries when providing advisory services but switch to a lower standard when selling certain products.

When you’re interviewing advisors, ask directly: “Are you a fiduciary 100% of the time, and can you provide that in writing?” Listen carefully to the answer. If they hedge or explain they’re only fiduciaries “sometimes,” that’s important information.

Understanding Compensation Models

How an advisor gets paid reveals potential conflicts of interest and helps you understand the true cost of their services.

Fee-Only Advisors

Fee-only advisors are compensated directly by clients through fees. These fees might be charged as a percentage of assets under management, hourly rates, or flat fees for specific services.

This model aligns the advisor’s interests with yours because they make money from your fees, not from selling products.

Commission-Based Advisors

Commission-based advisors earn money by selling financial products. While regulations require their recommendations to be “suitable,” they’re not always held to the higher fiduciary standard.

The challenge is that commissions create incentives to recommend products that pay higher commissions, even if lower-cost alternatives might serve you better.

Fee-Based (Not Fee-Only)

Be careful with terminology. “Fee-based” is different from “fee-only.” Fee-based advisors charge fees but may also receive commissions from product sales.

According to research from multiple sources, this hybrid compensation can create confusion about how the advisor is truly incentivized.

What You Should Expect to Pay

According to the Bureau of Labor Statistics, the median annual wage for personal financial advisors was $102,140 in 2024. Most traditional advisors charge around 1% of assets under management annually, though rates vary based on account size and services provided.

Lower-cost options like Vanguard’s Personal Advisor Services charge around 0.30% annually. Hourly or project-based fees vary widely depending on complexity.

The key is understanding exactly what you’re paying and what services you’re receiving for that cost.

Vetting Potential Advisors

Once you’ve identified potential advisors, thorough vetting is essential.

Check Their Background

Use free regulatory databases to verify credentials and check for complaints or disciplinary actions:

• FINRA BrokerCheck provides information on brokers and brokerage firms, including employment history, credentials, and any regulatory issues.
• SEC Investment Adviser Public Disclosure (adviserinfo.sec.gov) shows information about investment advisors, including their Form ADV which details services, fees, and potential conflicts of interest.
• Form CRS (Client Relationship Summary) is a standardized two-page document that advisors must provide, summarizing their services, fees, conflicts, and disciplinary history.

Interview Multiple Candidates

According to Fidelity, you should interview at least two or three advisors before deciding. Many offer free initial consultations.

During these meetings, focus on understanding their approach, communication style, and whether they seem genuinely interested in understanding your situation.

Key Questions to Ask

Your interviews should cover several critical areas:

1. Experience and Specialization: Do they work with clients in situations similar to yours? Business owners should look for advisors experienced with business finances. Retirees need someone knowledgeable about distribution strategies and Medicare coordination.
2. Investment Philosophy: Understanding their approach to investing helps determine if you’ll be comfortable with their strategy. Alignment on investment style matters because you need to believe in their approach to stick with it during difficult markets.
3. Services Provided: What exactly is included in their service? Comprehensive planning should address investments, taxes, insurance, estate planning, and regular progress reviews.
4. Communication: How often will you meet? What’s their preferred communication method? Setting clear communication expectations from the start prevents frustration later.
5. Team Structure: Will you work directly with this person or with a team? What happens if they’re unavailable or retire?

Evaluating Cultural Fit

Technical qualifications matter, but so does whether you’ll work well together.

Communication Style

You should choose an advisor whose communication style matches your preferences. Some people want detailed explanations and regular updates. Others prefer less frequent communication and high-level summaries.

Neither approach is wrong, but mismatched expectations can lead to frustration.

Values Alignment

Many people want advisors who understand and can align investments with their values. If this matters to you, discuss it upfront.

Trust and Comfort

You’ll be sharing confidential information about your finances, family, and goals. This relationship is built on trust and communication, so you need to feel comfortable with this person.

If something feels off during the interview, pay attention to that instinct.

Red Flags to Watch For

Certain warning signs should cause you to look elsewhere.

• Guaranteed Returns – No legitimate advisor guarantees specific investment returns. Markets are unpredictable. Anyone promising guaranteed results either doesn’t understand investing or isn’t being honest with you.
• High-Pressure Tactics – Good advisors give you time to think and don’t pressure immediate decisions. High-pressure sales tactics suggest the person cares more about closing the deal than your wellbeing.
• Vague Fee Explanations – If an advisor can’t or won’t clearly explain how they’re compensated, that’s a major red flag. Fee transparency is fundamental to an honest relationship.
• Limited Service Offerings – According to SmartAsset research, comprehensive planning addresses multiple aspects of your financial life. Advisors who only want to sell you specific products or who focus exclusively on investments without considering taxes, insurance, or estate planning may not provide the coordination you need.
• No Written Documentation – Everything should be documented in writing. Fee schedules, service agreements, investment strategies, all of it. Advisors hesitant to put things in writing should be avoided.

The Bottom Line

Choosing the right personal financial advisor requires thoughtful evaluation of credentials, compensation, services, and fit. The research is clear that working with a qualified advisor can significantly improve financial outcomes and confidence.

According to Vanguard research, advisors can add approximately 3% in net annual returns through appropriate asset allocation, rebalancing, and behavioral coaching. Morningstar calculated a 1.82% annual advantage from optimal financial planning strategies.

However, these benefits only materialize when you work with the right advisor for your situation.

Two-thirds of Americans believe their financial planning needs improvement. Yet only about one-third actually work with advisors. Often, the gap exists not because people don’t want help, but because they don’t know how to find the right help.

The process I’ve outlined takes time and effort, but compared to the decades you might work with this person and the impact they’ll have on your financial future, it’s time well spent.

We don’t run our business on autopilot, and your selection process shouldn’t run on autopilot either. Take the time to understand your needs, research qualified candidates, conduct thorough interviews, and make a decision you feel confident about.

Your family’s financial security deserves that level of care and attention.

Sources

1. Northwestern Mutual – “Planning & Progress Study 2023”
   https://news.northwesternmutual.com/planning-and-progress-study-2023
2. NerdWallet – “How to Choose a Financial Advisor in 5 Steps”
   https://www.nerdwallet.com/article/investing/how-to-choose-a-financial-advisor
3. Vanguard – “How to Choose a Financial Advisor”
   https://investor.vanguard.com/investor-resources-education/article/how-to-choose-a-financial-advisor
4. Fidelity – “How to Find and Choose a Financial Advisor”
   https://www.fidelity.com/learning-center/smart-money/how-to-find-a-financial-advisor
5. Edward Jones – “How to Choose a Financial Advisor”
   https://www.edwardjones.com/us-en/working-financial-advisor/how-choose-financial-advisor
6. SmartAsset – “How to Find and Choose a Financial Advisor”
   https://smartasset.com/retirement/financial-advisor
7. Bankrate – “4 Tips For Finding The Right Financial Advisor For You”
    https://www.bankrate.com/investing/financial-advisors/how-to-choose-a-financial-advisor/
8. Consumer Reports – “How to Find a Good Financial Planner”
   https://www.consumerreports.org/money/financial-planning/how-to-find-a-good-financial-planner
9. Edelman Financial Engines – “How To Choose a Financial Advisor”
    https://www.edelmanfinancialengines.com/education/financial-planning/how-to-choose-a-financial-advisor/
10. Kiplinger – “How to Find a Financial Adviser”
    https://www.kiplinger.com/personal-finance/how-to-find-a-financial-adviser
11. U.S. Bureau of Labor Statistics – “Personal Financial Advisors: Occupational Outlook Handbook”
    https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm
12. SmartAsset – “What Are the Benefits of Working With a Financial Advisor? – 2021 Study”
    https://smartasset.com/data-studies/benefits-of-working-with-a-financial-advisor-2021
13. BizPlanr – “2025 Financial Advisor Statistics: 30+ Key Insights”
    https://bizplanr.ai/blog/financial-advisor-statistics
14. Viridian Wealth Management – “The Value of Working with a Financial Advisor: A Data-Driven Perspective”
    https://www.viridian-wealth.com/blog/value-working-financial-advisor-data-driven-perspective

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor.

After 40 years in this business, I’ve noticed something interesting. People often assume bigger is better when choosing a financial advisor.

Brand names feel safer, the offices look impressive, and the commercials promise old-fashionedservice.

Still, the reality doesn’t always match the image. The structure of a firm matters more than most people realize, and understanding these differences can save you headaches down the road.

Let me walk you through what actually separates independent financial planners from large firms.

The Fiduciary Difference

Start here, because this is foundational.

Independent Registered Investment Advisors work as fiduciaries. That means they’re legally required to put your interests first, every time. If they don’t, you have legal recourse.

Many large firms operate under what’s called a “suitability standard.” This standard is less strict.According to research from Paladin Registry, advisors at these firms can legally recommend more expensive products to you, as long as they’re generally suitable for your needs. The product doesn’t have to be the best option, just an acceptable one.

That’s a meaningful distinction when your money is on the line.

How Compensation Works

This gets to the heart of potential conflicts.

Most independent advisors charge fees directly to you, similar to how you would pay your accountant or attorney. You pay for advice, period. According to SmartAsset, many independentadvisors are fee-only, meaning they don’t earn commissions from selling specific products.

Large firms often have a different model. Some are product companies first. A sizable portion of their profits comes from financial products like mutual funds and insurance. When advisors receive commissions for selling those products, their incentive shifts.

The question becomes: are you getting financial advice, or product recommendations?

The Relationship Factor

Size affects how personal your relationship with an advisor can be.

Independent advisors typically manage smaller client bases. According to CNBC, this allows them to provide more personalized service and tailor advice to your specific situation. When youcall, you’re talking to someone who knows your name and your circumstances.

At larger firms, advisors often manage hundreds of relationships. According to industry researchcompiled by U.S. News & World Report, clients at large firms sometimes feel like another number. The service can feel more transactional than relational.

Your comfort with this trade-off matters. Some people prefer the efficiency of larger operations. Others value the deeper relationship that comes with a smaller firm.

Investment Options and Flexibility

Independent advisors aren’t restricted to specific product lineups.

They can access investments from multiple custodians and use whatever tools best serve your situation. As noted by Finance Strategists, this independence allows them to remain unbiased intheir recommendations, free from conflicts of interest when advising clients.

Large firms frequently push proprietary products. They have in-house mutual funds and insurance products that they are incentivized to sell. According to research from independent financial planners who transitioned from large firms, this creates a structural conflict in which advisors may recommend more expensive options that benefit the firm.

The result: you might pay higher fees for products that don’t perform any better than lower-cost alternatives.

The Planning Approach

Independent firms often take what’s called a holistic approach.

They look at your complete financial picture: taxes, estate planning, insurance, investments, andretirement, all working together. Everything connects.

According to Morningstar research cited by CNBC, larger firms tend to focus disproportionately on investment. The emphasis is on asset growth rather than comprehensive planning. As one industry expert noted, people often need more help with planning than with investments.

Resources and Infrastructure

Large firms have advantages here, no question.

They have specialized teams, extensive research departments, and sophisticated technology platforms. According to SmartAsset’s analysis, advisors at these firms benefit from economies of scale that can sometimes translate to lower-cost investment options.

Independent firms leverage partnerships with larger custodians for account and infrastructure services. Most independent firms use institutions like Schwab, Fidelity, or TD Ameritrade for custody. This gives them access to institutional-level resources without the conflicts that come from being owned by those institutions.

Accountability and Transparency

This is where the business model matters most.

Independent firms depend on referrals and satisfied clients for growth. They need strong word-of-mouth advertising to attract clients, so their goal is to keep clients satisfied and informed.

Large firms have marketing budgets big enough that individual client satisfaction matters less. If someone leaves, another prospect is usually on the way in. The business model doesn’t requirethe same level of client retention.

That changes the incentive structure entirely.

What This Means for You

Neither model is inherently wrong, but they serve different needs.

Large firms work well if you want brand recognition, don’t need extensive personal attention, and are comfortable with more standardized investment approaches.

Independent advisors make sense if you value personalized service, want comprehensive planning beyond just investments, and prefer working with someone who has a legal obligation to put your interests first.

The structure of the firm you choose will shape every aspect of your financial relationship. It affects the advice you receive, the products you’re offered, and whether your advisor’s interests align with yours.

Take the time to understand these differences before making your decision. Your financial future is too important to leave to assumptions about what a brand name represents.

Ask direct questions about how advisors are compensated, what their fiduciary obligations are, and how many clients they serve. The answers will tell you everything you need to know.

This information is for educational purposes only and is not intended as investment, tax, or legaladvice. Past performance is not indicative of future results. Investment advisory services offeredthrough Summit Financial, LLC, a SEC Registered Investment Advisor.

Sources:

1. “Ask an Advisor: Is it Better to Work With an Independent Advisor or One From a Large Firm?” August 29, 2023. https://smartasset.com/financial-advisor/ask-an-advisor-independent-vs-large
2. “What Is an Independent Financial Advisor?” August 5, 2025. https://smartasset.com/financial-advisor/independent-financial-advisor
3. “7 Benefits of Hiring an Independent Financial Advisor.” December 13, 2024. https://smartasset.com/financial-advisor/benefits-of-independent-financial-advisor
4. Paladin “Why Independent Financial Planners are Better than Advisors Who Work at a Big Firm.” July 2, 2019. https://www.paladinregistry.com/blog/advisors/why-independent-financial-planners-are-better-than-advisors-who-work-at-a-big-firm/
5. “It’s small vs. big when picking an advisor.” July 31, 2017. https://www.cnbc.com/2017/07/31/its-small-vs-big-when-picking-an-advisor.html
6. S. News & World Report. “What You Need to Know About Independent Financial Advisors.” August 4, 2020. https://money.usnews.com/financial-advisors/articles/what-you-need-to-know-about-independent-financial-advisors
7. Finance “Independent Financial Advisor | Meaning, Pros, & Cons.” February 16, 2024. https://www.financestrategists.com/financial-advisor/advisor-types/independent-financial-advisor/
8. ICC “Independent Financial Advisor vs. Brand-Name Firm: Which To Use.” May 17, 2024. https://iccnv.com/financial-advisor-brand-name/
9. Totem Wealth Management. “Large Wealth Management Firms vs Independent Advisors.” June 9, https://totemwealthmanagement.com/blog/large-wealth-management-firms-vs-independent-advisors-which-is-right-for-you/
10. Imagine Financial “Benefits of Working with an Independent Financial Advisor.” April 5, 2023. https://imaginefinancialsecurity.com/financial-planning/benefits-working-with-an-independent-financial-advisor/

Choosing a financial advisor is one of the most important decisions you’ll make. This person will have access to your financial information, influence your investment decisions, and potentially shape your family’s financial future for decades.

Yet many people spend more time researching which car to buy than which advisor to hire.

Over the years, I’ve talked with families who learned difficult lessons about what happens when you don’t ask the right questions upfront. Hidden fees that compound over time. Conflicts of interest that weren’t disclosed. Promises about services that never materialized.

The good news is that a thoughtful interview process can help you avoid these problems. The questions you ask before hiring an advisor reveal whether they’ll put your interests first or their own.

Let me walk you through the essential questions that protect your wealth and help you find an advisor who truly serves your needs.

Why the Interview Matters

According to research from HSBC, 55% of investors who work with a financial advisor saved more for retirement than they would have on their own. The National Study of Millionaires found that 68% of millionaires worked with an investment professional as they built their net worth.

Working with the right advisor can make a meaningful difference. But the emphasis is on “right advisor.”

Not all advisors operate under the same standards. Some are legally required to put your interests first. Others only need to recommend products that are “suitable” for you, even if better options exist.

Understanding these differences before you hire someone is important for protecting your financial future.

The Fiduciary Question: Start Here

This may be the single most important question to ask any advisor you’re considering:

“Are you a fiduciary 100% of the time, and can you provide that in writing?”

This matters because a fiduciary is legally obligated to put your interests ahead of their own. The Securities and Exchange Commission defines this as having both a duty of care and a duty of loyalty to clients.

The duty of care requires advisors to thoroughly understand your financial situation, goals, and risk tolerance before making recommendations. They must research investment options diligently and provide advice grounded in accurate information.

The duty of loyalty requires advisors to put your interests first and not favor their own interests over yours. They must make full and fair disclosure of all material facts relating to the advisory relationship.

This fiduciary standard reflects what the Supreme Court called “the delicate fiduciary nature of an investment advisory relationship” and Congressional intent to eliminate conflicts of interest that might lead to advice that isn’t truly disinterested.

Where it gets complicated is that many advisors are what the industry calls “dually registered” or “fee-based.” These advisors can take their fiduciary hat on and off.

One day they act as a fiduciary putting your interests first. The next day they can sell you an insurance product or investment with hidden fees and commissions, operating under a lower standard called “suitability.”

The suitability standard only requires that recommendations be appropriate for your financial situation. It doesn’t require the advisor to act in your best interest or to recommend the lowest-cost option.

According to financial planning expert Taylor Schulte, CFP, most advisors who claim to be fiduciaries are actually dually registered and are not fiduciaries 100% of the time.

When you ask about fiduciary status, listen carefully to the answer. If they hedge or explain that they’re a fiduciary “sometimes” or “when acting in an advisory capacity,” that can be a red flag. You want someone who always puts your interests first, not just when it’s convenient.

Understanding Compensation: Follow the Money

The second critical question is:

“How are you compensated, and are there any other ways you make money from my relationship beyond your stated fees?”

How an advisor gets paid reveals potential conflicts of interest. There are several compensation models.

Fee-Only Advisors

Fee-only advisors are paid directly by clients, either as a percentage of assets under management, hourly rates, or flat fees for specific services. They don’t receive commissions from product sales.

This model aligns the advisor’s interests with yours. They make money when you pay their fee, not when they sell you something.

Commission-Based Advisors

Commission-based advisors earn money when they sell you products. This creates potential conflicts because they’re financially motivated to recommend products that pay them commissions, even if lower-cost alternatives might serve you better.

Some commission-based advisors advertise “free” advice, but you might pay through product fees and commissions. These costs are often less transparent but can be significant over time.

Fee-Based (Not Fee-Only)

Fee-based advisors charge fees but may also receive commissions. This hybrid model can create confusion about how they’re really being compensated and where their loyalties lie.

According to research from NerdWallet, most financial advisors charge based on how much money they manage for you, with fees typically around 1% annually, though rates can vary.

Ask for complete transparency. Request a written breakdown of all fees, including management fees, transaction costs, fund expenses, and any commissions or compensation they receive from third parties.

If an advisor seems reluctant to provide clear answers about compensation or if the fee structure seems unnecessarily complex, consider that a warning sign.

Experience and Qualifications

Not all financial advisor credentials are created equal. Ask these questions to understand their background:

“What are your professional credentials, and what do they require in terms of continuing education and ethical standards?”

For example:

Certified Financial Planner (CFP) professionals must complete extensive education, pass rigorous exams, and commit to ethical standards including fiduciary duty. According to the CFP Board, this designation indicates a commitment to putting clients’ interests first.

Chartered Financial Analysts (CFA) have deep investment knowledge and are also held to fiduciary standards.

Other advisors might have basic licenses that allow them to sell certain products but don’t require the same level of education or commitment to client-first service.

“Who are your typical clients, and do you have experience with situations like mine?”

You want an advisor familiar with your type of situation. If you’re a business owner, find someone with business owner clients. If you’re approaching retirement with complex estate planning needs, look for that experience.

According to Edward Jones research, advisors with career experience outside financial services can often offer more specific insight relevant to your situation.

Investment Philosophy and Strategy

Understanding how an advisor approaches investing helps you determine if you’ll be comfortable with their strategy.

“What is your investment philosophy, and how do you construct portfolios?”

As NerdWallet points out, it’s important that you and your advisor align on investment style. If you believe in socially responsible investing, make sure they can accommodate that. If you prefer active management over passive index funds, or vice versa, ensure they’re comfortable with your preference.

“How do you handle down markets, and what would you do if my portfolio dropped significantly?”

When markets decline is when advisors really demonstrate their value. You want someone who can help you stick to your plan during volatility rather than panic and make emotional decisions.

“How do you measure success, and what benchmarks do you use?”

Your advisor should define success in terms of helping you achieve your specific goals, not just beating market indexes. They should track progress and communicate it clearly.

Service Model and Communication

Understanding how you’ll work together prevents frustration down the road.

“How often will we meet, and how do you typically communicate with clients?”

Most people connect with their advisor quarterly for updates, with at least one formal annual review. Find a communication frequency and style that works for you.

Some advisors prefer in-person meetings. Others use video calls or phone conversations. Make sure their approach matches your preferences.

“What services do you provide beyond investment management?”

Look for advisors who consider your complete financial picture, not just investments. This includes tax planning, insurance needs, estate planning, and real estate decisions.

The best advisors coordinate all aspects of your financial life rather than treating investments in isolation.

“Do you have a team, and who will I work with day-to-day?”

Some advisors work independently. Others are part of larger firms with teams and resources. Understanding the structure helps set appropriate expectations.

“What happens if you’re unavailable or retire? Is there a succession plan?”

Your financial relationship might last decades. Understanding continuity planning protects you if circumstances change.

Checking References and Background

Never skip this step.

“Have you ever had any regulatory complaints or disciplinary actions?”

You can verify this yourself through the Financial Industry Regulatory Authority (FINRA) BrokerCheck website or the SEC’s Investment Adviser Public Disclosure database. These free tools show an advisor’s professional background, credentials, and any reportable infractions or client complaints.

According to Covenant Wealth Advisors, checking these databases is essential before hiring any advisor. If you find compliance disclosures or disciplinary history, ask direct questions about what happened and how it was resolved.

Red Flags to Watch For

During your interview, be alert for these warning signs:

Guarantees About Returns

No legitimate advisor can or should promise specific investment returns. Markets are unpredictable. Anyone guaranteeing results is either misleading you or doesn’t understand risk.

Pressure to Make Quick Decisions

Legitimate advisors give you time to think and don’t pressure you into immediate action. High-pressure sales tactics could suggest the person is more focused on their own commission than your wellbeing.

Overly Complex Explanations

Good advisors explain complex topics in simple terms. If someone can’t explain their strategy clearly or hides behind jargon, that’s concerning. You should understand what you’re investing in and why.

Reluctance to Provide Written Information

Everything should be documented in writing. Fee schedules, investment strategies, services provided, all of it. If an advisor is hesitant to put things in writing, that’s a major red flag.

Conflicts They Won’t Discuss

All advisors face some conflicts of interest. Honest advisors disclose them upfront and explain how they manage them. Advisors who claim they have no conflicts or who dismiss the question aren’t being transparent.

Questions About Your Situation

A good interview isn’t one-sided. The advisor should ask you thoughtful questions about your situation, goals, and concerns.

Effective advisors ask detailed questions about your immediate needs, short and long-term goals, risk tolerance, and financial situation. They should want to understand your full financial picture, including assets not directly invested with them like employer 401(k)s or real estate.

If an advisor doesn’t ask many questions about you or seems to have a one-size-fits-all approach, that’s concerning. Your financial plan should be customized to your specific circumstances.

Making Your Decision

After interviewing several advisors, give yourself time to reflect. Compare not just what they said but how they said it.

Did they listen more than they talked? Did they explain things clearly? Did you feel comfortable asking questions? Did they seem genuinely interested in understanding your situation?

Trust your instincts while also evaluating the objective factors. The right advisor should have appropriate credentials, transparent fees, a fiduciary commitment, relevant experience, and a communication style that works for you.

Don’t let anyone rush you into a decision. This relationship is too important to enter without confidence.

The Bottom Line

The questions you ask before hiring a financial advisor can save you significant money, stress, and disappointment over time.

Most families we work with had previous advisor relationships that didn’t work out. Common problems include a lack of communication, hidden fees, recommendations that seemed more beneficial to the advisor than the client, and strategies that didn’t align with their actual goals.

These problems are often preventable through a thorough interview process.

Your family’s financial security deserves someone who will put your interests first, communicate clearly, provide transparent pricing, and have the expertise to guide you through complex decisions.

We don’t run our business on autopilot, and you shouldn’t accept autopilot service from your advisor either.

Take the time to ask these questions. Listen carefully to the answers. Check regulatory records. Make sure you understand exactly what you’re getting and what you’ll pay for it.

The interview might feel uncomfortable, but it’s far less uncomfortable than discovering years later that you hired the wrong person.

Sources

Summit Financial, LLC has no affiliation with these entities.

1. HSBC – “The Future of Retirement”
   https://www.sgmoneymatters.com/wp-content/uploads/2013/05/HSBC-The-Future-Of-Retirement.pdf 
2. NerdWallet – “10 Questions to Ask a Financial Advisor”
   https://www.nerdwallet.com/article/investing/10-questions-ask-financial-advisor
3. Edward Jones – “Questions to Ask a Financial Advisor”
   https://www.edwardjones.com/us-en/working-financial-advisor/questions-ask-financial-advisor
4. Define Financial – “The 7 (Most Important) Questions to Ask a Financial Advisor”
    https://www.definefinancial.com/blog/best-questions-to-ask-financial-advisor/
5. SmartAsset – “11 Questions to Ask a Financial Advisor”
   https://smartasset.com/financial-advisor/questions-to-ask-a-financial-advisor
6. Covenant Wealth Advisors – “7 Powerful Questions To Ask a Financial Advisor in the First Meeting”
   https://www.covenantwealthadvisors.com/post/questions-to-ask-financial-advisor-first-meeting
7. U.S. Securities and Exchange Commission – “Commission Interpretation Regarding Standard of Conduct for Investment Advisers”
   https://www.sec.gov/files/rules/interp/2019/ia-5248.pdf
8. U.S. Securities and Exchange Commission – “Regulation Best Interest and the Investment Adviser Fiduciary Duty”
   https://www.sec.gov/newsroom/speeches-statements/clayton-regulation-best-interest-investment-adviser-fiduciary-duty
9. SmartAsset – “Fiduciary Duty vs. Suitability Standards”
   https://smartasset.com/financial-advisor/fiduciary-vs-suitability
10. Kitces.com – “Takeaways From SEC’s Staff Bulletin On RIA Standard Of Care”
     https://www.kitces.com/blog/ria-standard-of-care-fiduciary-duty-sec-reg-bi-investment-due-diligence/
11. World Advisors – “Are All Financial Advisors Fiduciaries?”
    https://worldadvisors.com/blog/employer/are-all-financial-advisors-fiduciaries

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor.

Every family reaches a point when their wealth outgrows basic planning.

It usually happens quietly: a business sale, a second property, or setting up a trust for the kids.

Then one day, you realize you have five different professionals giving five different opinions, and none of them are talking to each other.

That’s not a plan. That’s organized chaos dressed up in a spreadsheet.

At that point, you don’t need another advisor. You need alignment and someone to bring your financial team together. That’s what family office services from a certified financial planner and certified financial advisor deliver.

What “Family Office” Really Means

Most people hear “family office” and picture billionaires with private staff. That’s not what we’re talking about.

A family office is a coordinated system where financial, legal, tax, and investment management work together under one strategy.

It’s the difference between a pit crew and a parking lot full of mechanics. Everyone in a family office setup works in sync, not in silos.

The goal is simple: clarity, control, and coordination.

Wealth should make life easier, not harder. A family office keeps your investments, trusts, businesses, and estate documents working together toward the same goals.

When Basic Planning Stops Working

Our experience shows this is a common challenge: A family with $10-$20 million in assets still runs their finances like they did when they had two accounts and a CPA.

Meaning:

• Their CPA handles taxes.
• Their broker manages investments.
• Their attorney drafts the trust.
• No one leads.

That’s like having four captains and no compass.

When wealth reaches this level, separate advice turns into conflicting advice. You start reacting instead of leading. That’s when it’s time for a family office approach, built around one coordinated plan and one set of priorities.

The Core of Family Office Services

With a certified financial planner or certified financial advisor, you have someone looking at all of the pieces of your wealth and creating a path to achieve your goals. They offer:

1. Centralized Oversight

You need a quarterback, someone who understands how your investments, taxes, insurance, estate plans, and business interests all fit together.

That’s the foundation of family office services.

Everything ties back to one unified strategy and reporting system, so you know where you stand, what’s at risk, and what’s working.

2. Tax and Estate Alignment

We say this often: You can’t build wealth faster than bad planning can destroy it.

A valid CFP or CFA looks at the entire tax and estate picture, not just once a year at tax time, but continuously.

That means reviewing entities, trusts, charitable giving, and ownership structures to ensure every dollar supports your goals.

3. Multi-Generational Planning

Money without meaning doesn’t last.

Our clients care less about spending wealth and more about passing on wisdom with it. Family office planning creates a roadmap for children and grandchildren that includes education, values, and vision.

The goal isn’t to make them rich. It’s to make them ready.

4. Philanthropy and Purpose

When wealth reaches a certain level, giving becomes part of the conversation.

We help families align their giving with impact through donor-advised funds, private foundations, or direct support, making generosity intentional and tax-efficient.

5. Reporting and Transparency

You can’t manage what you can’t see.

A family office structure turns scattered accounts and assets into one clear picture, giving you complete control and zero surprises.

Absolute Clarity for a Business Owner

A Florida business owner came to us after selling his company for $18 million. He had a trust, several investment accounts, two homes, and adult children scattered across three states.

Each professional was doing good work individually, but together it was a mess.

The estate attorney didn’t coordinate with the CPA. The CPA didn’t talk to the investment manager. The trusts were outdated.

We built a coordinated plan:

• Updated estate documents
• Consolidated reporting
• Tax-efficient charitable structure
• Education meetings with the kids

Result? Simplicity, clarity, and peace of mind. His family finally had one strategy and one direction.

We turned complexity into clarity and momentum.

When to Consider Family Office Services

Wondering when it’s time to make the shift? Ask yourself these questions:

1. Do I have multiple entities, trusts, or properties?
2. Does my net worth exceed $5 million?
3. Do I have more than one advisor managing separate areas?
4. Do I feel like the left hand doesn’t know what the right hand is doing?

Nod at two or more of these, and you’ve already crossed that line. It’s time to call a certified financial planner or certified financial advisor.

Myths About Family Office Services

“We’re Not Wealthy Enough”

It’s not about how much you have; it’s about how complex your life has become. Family office services are built for families managing multiple priorities and generations, not just billionaires.

“My Advisor Already Handles This”

Maybe. But is anyone seeing the whole picture? Taxes, investments, trusts, and business structures only work when they’re coordinated. If they’re not, small gaps can turn into big mistakes.

“It Costs Too Much”

Disorganization is far more expensive. Missed deductions, outdated documents, and uncoordinated decisions can cost much more than a structured approach ever will.

The Bottom Line

Family office services aren’t a luxury. They’re a necessity when success starts to create complexity. They bring everything together, including advice, planning, and reporting, into one transparent and accountable structure.

At Great Lakes Private Wealth, we don’t run on autopilot. Every family deserves proactive, hands-on coordination that makes wealth work for them, not against them. Wealth without structure creates stress. Let’s fix that and build a plan that works for your family.

Sources

1. PwC – How family offices are adapting capital deployment in uncertain times  https://www.pwc.com/gx/en/services/family-business/family-office/family-office-deals-study.html 
2. Financial Poise – “The Evolution of Family Offices: From Empires to Modern Wealth Management” https://www.financialpoise.com/the-evolution-of-family-offices-from-empires-to-modern-wealth-management/ 
3. Deloitte – “The Family Office Insights Series. Global Edition” https://www.deloitte.com/uk/en/services/deloitte-private/about/defining-the-family-office-landscape.html 
4. Harvard Business Review – “Is Your Family Office Built for the Future?” https://hbr.org/2022/09/is-your-family-office-built-for-the-future 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8523086.1

As someone who works with families on retirement planning, I get asked this question often:

“Patrick, do I really need a 401k financial advisor, or can I handle this myself?”

It’s a thoughtful question. Managing your own 401k can make sense in some situations, but there are times when professional guidance can be valuable.

According to Fidelity’s 2024 data, the average 401k balance is $93,054, but workers who have been consistently contributing to the same plan for 15 years have an average balance of $448,800. This significant difference highlights how strategic, long-term 401k management can make a meaningful impact on retirement outcomes.

Let me walk you through when DIY 401k management might work fine, and when bringing in a 401k financial advisor could make a meaningful difference.

The DIY Approach: When It Can Work

Before explaining when you might benefit from professional help, let me acknowledge when you probably don’t need it.

If you’re in your 20s or 30s, have a straightforward financial situation, and your employer offers a decent 401k with low-cost index funds, you can likely manage this effectively on your own.

Here’s what “straightforward” typically looks like:

• You’re contributing at least enough to get the full company match
• You’re comfortable with a diversified mix of low-cost index funds
• You’re not trying to time the market
• You have decades until retirement

According to Bureau of Labor Statistics data, 84.9% of employees participate in their 401k plans, and 92% of American workers with 401k plans report that having a payroll deduction helps them save. For many people in straightforward situations, a target-date fund that automatically adjusts over time can be perfectly adequate.

But as situations become more complex, the considerations change.

When 401k Management Gets More Complex

As I work with business owners and professionals, I see situations where 401k financial advisor guidance becomes more valuable.

Complex Fund Menus

Many employer plans offer numerous investment options, and not all of them may be optimal choices. Some plans have 40+ investment options where perhaps only a portion are worth considering for most investors.

It’s not uncommon to see portfolios with multiple funds that essentially own the same companies. Someone might think they’re diversified when they’re actually concentrated in one area of the market.

Research from Morningstar shows that over the decade through June 2024, just 20% of active large-cap funds survived and beat their average passive rival. Additionally, according to S&P’s SPIVA data, 60% of active U.S. Large Cap Equity funds underperformed the S&P 500 in 2023, which tracks closely with the 64% average underperformance over 23 years of data.

Simplifying allocations while improving true diversification and reducing annual fees can be beneficial. Even small fee reductions can add up significantly over time on larger balances.

High-Income Earners and Contribution Strategies

If you’re a successful business owner or high-earning professional, your 401k strategy becomes more sophisticated.

Contribution limits change regularly. For 2024, you can contribute $23,000 to your 401k, plus an additional $7,500 if you’re 50 or older. But there are also backdoor Roth strategies, mega backdoor Roth contributions, and after-tax contribution options that many people don’t fully understand.

Some 401k plans allow after-tax contributions up to much higher annual limits – up to $70,000 total in 2024 ($77,500 if over 50). By restructuring savings approaches, it’s possible to contribute significantly more annually to retirement in tax-advantaged ways.

Business Owner 401k Plans

If you own a business with employees, your 401k decisions affect not just you, but your entire team. Plan design, contribution matching, safe harbor provisions, and fiduciary responsibilities make this much more complex.

According to industry data, compared to about 89% of firms with 100-499 workers and 92% of companies with 500+ employees, just 46% of employers with less than 100 employees provide

a 401k or similar plan. Employers’ main reasons for not offering a plan include that their business isn’t big enough (79%) and expense concerns (31%).

Business owners need to balance maximizing their own retirement contributions with providing meaningful benefits for employees, while managing costs and staying compliant with regulations.

The Coordination Challenge

One area where I see missed opportunities is treating your 401k like it exists in isolation instead of coordinating it with your overall financial plan.

Asset Location Strategy

Different types of investments work better in tax-deferred accounts like 401k plans versus taxable investment accounts. This concept is called “asset location.”

For example, bonds and REITs are generally more tax-efficient inside your 401k, while tax-efficient stock index funds can work well in taxable accounts.

However, many people don’t consider this coordination. They might have similar “balanced” portfolios in both their 401k and their taxable accounts, potentially missing opportunities for tax optimization.

Roth vs Traditional Decisions

The choice between traditional (pre-tax) and Roth (after-tax) 401k contributions isn’t just about current versus future tax rates. It depends on your overall tax strategy, other retirement accounts, estate planning goals, and more.

Some people automatically choose traditional 401k contributions for the current tax deduction, but when you look at their complete picture – including other income sources and family situation – Roth contributions might make more sense.

When to Consider a 401k Financial Advisor

Based on experience, here are situations where professional 401k financial advisor guidance typically provides significant value:

You Have a High Income

If you’re earning $200,000+ annually, the tax implications of your 401k decisions become much more significant. Advanced strategies like mega backdoor Roth contributions, careful timing of

withdrawals, and coordination with other tax-advantaged accounts can potentially save thousands in taxes.

You’re Within 10-15 Years of Retirement

As you get closer to retirement, your 401k management shifts from growth-focused to transition planning. Considerations include:

• When to stop contributions and start distributions
• Managing the shift from accumulation to income
• Tax-efficient withdrawal strategies
• Required minimum distribution planning

You Own a Business

Business owners face unique 401k challenges including plan selection, fiduciary responsibility, employee communications, and maximizing their own contributions while managing costs.

Your Plan Has Limited Investment Options

Some employer 401k plans have expensive or limited investment options. A 401k financial advisor can help you make the best of a challenging situation and coordinate with outside investments to build a more optimal overall portfolio.

You Have Multiple 401k Accounts

Many people have 401k accounts from previous employers in various places. Coordinating multiple accounts, deciding whether to roll them over, and managing the overall allocation across all accounts can become complex.

What a 401k Financial Advisor Actually Does

When we work with people on 401k optimization, here’s what that typically looks like:

Plan Analysis and Optimization

We review plan investment options, identify the most suitable funds, and help build an allocation that makes sense for the person’s situation and timeline.

Contribution Strategy

We help determine optimal contribution amounts, whether to use traditional or Roth options, and how to coordinate with other retirement savings.

Integration with Overall Plan

Your 401k doesn’t exist in isolation. We work to ensure employer plans coordinate well with other investments, tax strategies, and financial goals.

Ongoing Monitoring

Investment options change, situations evolve, and tax laws shift. We monitor 401k accounts and suggest adjustments as needed.

Transition Planning

As people approach retirement, we help develop strategies for transitioning from contributions to distributions in tax-efficient ways.

The Cost of DIY Mistakes

Consider this educational example: A successful small business owner had been managing their own 401k for 20 years, proud of not paying advisory fees.

When analyzed, several issues were apparent:

• The allocation hadn’t been rebalanced in years
• They were invested in expensive actively managed funds when cheaper index options were available
• They weren’t taking advantage of after-tax contribution opportunities
• Their withdrawal strategy would create unnecessary tax complications

According to a 2024 Vanguard study, 55% of job switchers reduced their 401k nest egg by $300,000 over their working lives by failing to adjust their savings rate to their new, higher salary. This demonstrates how seemingly small oversights can compound into significant costs over time.

Research from Russell Investments shows that individuals who worked with financial advisors accumulated, on average, 1.5% more in assets over a 25-year period compared to those who managed everything themselves.

Over time, these issues can potentially cost significant amounts in lower returns and higher taxes. The “free” DIY approach can sometimes become expensive.

The Professional Value-Add

Research consistently shows the value that professional guidance can provide:

Vanguard’s Advisor Alpha Study found that advisors can add up to 3% in annual net returns for clients through services like financial planning, behavioral coaching, and tax efficiency – significantly more than typical advisor fees.

Envestnet Research indicates that advisors have the potential to add more than 300 basis points (3%) in annual value for clients, particularly through tax efficiency and behavioral coaching.

Behavioral Benefits: According to industry studies, 77% of participants are extremely confident in their ability to make the right financial decisions with the help of a financial advisor, compared to just 38% who are confident making 401k investment decisions on their own.

Questions to Ask Yourself

Here are some questions that might help determine if you could benefit from 401k financial advisor guidance:

About Your Situation:

• Do you earn more than $150,000 annually?
• Are you within 15 years of retirement?
• Do you own a business with employees?
• Do you have multiple retirement accounts to coordinate?

About Your Knowledge:

• Do you understand the expense ratios of your fund options?
• Can you explain when Roth contributions make more sense than traditional?
• Do you know how to evaluate whether your plan’s investment options are good?

About Your Results:

• Have you reviewed your 401k allocation in the past year?
• Do you know how your returns compare to appropriate benchmarks?
• Are you confident in your withdrawal strategy for retirement?

If you’re uncertain about several of these areas, it might be worth having a conversation with a 401k financial advisor.

The Technology Factor

Many people assume that robo-advisors and 401k apps can replace professional guidance. While these tools can be helpful, they have limitations.

Research shows that only 40% of investors rely on robo-advisors for getting reliable advice, despite their growing availability.

Most automated services can’t:

Analyze your specific plan’s investment options

Coordinate with your outside investments and tax strategies

Provide guidance for complex situations like business ownership

Adapt to major life changes or market shifts

Help with transition planning and withdrawal strategies

Technology is a useful tool, but it may not be a complete replacement for human expertise in complex situations.

Working with Your HR Department

Let me address something I hear often: “Can’t I just ask HR about my 401k questions?”

Your HR department can help with basic plan logistics – login information, contribution changes, beneficiary updates. But they typically can’t provide investment advice or personalized strategies.

HR professionals are experts in benefits administration, not investment management. They’re generally not permitted to give specific guidance about which funds to choose or how much to contribute.

Making the Decision

The decision to work with a 401k financial advisor ultimately comes down to complexity, time, and value.

According to industry research, 41% of Americans don’t contribute any money at all to a 401k or employer-sponsored plan. Even among those who do contribute, the majority say they are not on track with their yearly 401k savings to retire comfortably.

If your situation is straightforward, you enjoy managing investments, and you have time to stay current with tax law changes and investment research, DIY might work fine.

But if your situation is complex, you value your time, or you want the confidence that comes with professional oversight, working with an advisor can provide significant value.

What to Look For in a 401k Financial Advisor

If you decide to work with a professional, here’s what to consider:

Fiduciary Standard: Make sure they’re legally required to put your interests first.

Fee Transparency: Understand exactly what you’re paying and what services you’re receiving.

Comprehensive Approach: Look for advisors who view your 401k as part of your overall financial plan, not in isolation.

Experience: Choose someone who regularly works with 401k optimization and understands the nuances.

Communication Style: Find someone who explains things clearly and answers your questions patiently.

The Bottom Line

Your 401k is likely one of your largest assets and a critical component of your retirement security. Whether you manage it yourself or work with a 401k financial advisor, the important thing is making sure it’s properly handled.

What you see is what you get – if you’re confident in your ability to optimize your 401k and coordinate it with your overall financial plan, DIY can work. But if you want professional oversight and strategic guidance, a good 401k financial advisor can provide significant value.

The key is being honest about your situation, your knowledge level, and the complexity of your financial life.

For many people approaching or in retirement, their 401k represents a significant portion of their wealth that’s too important to leave to chance.

Sources

1. Fidelity Investments Q2 2024 401(k) Data https://www.fidelity.com/about-fidelity/Q2-2024-retirement-analysis 
2. Bank of America 2024 Participant Pulse Report https://www.napa-net.org/news/2024/5/401k-participants-end-q1-higher-balances-contribution-rates/ 
3. Bureau of Labor Statistics 2024 Employee Benefits Survey https://www.bls.gov/news.release/ebs2.t01.htm
4. Morningstar Active vs. Passive Barometer 2024 https://www.morningstar.com/business/insights/blog/funds/active-vs-passive-investing
5. S&P Indices Versus Active (SPIVA) U.S. Scorecard https://archive.themathergroup.com/insights/market-updates/active-management-vs-index-based-investing-an-update-on-performance
6. Vanguard Advisor’s Alpha Study https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/quantifying-evolution-advice-and-value-investors.html
7. Russell Investments Value of an Advisor Study (2023) https://carverfinancialservices.com/the-value-of-guidance-studies-show-higher-net-returns-when-you-work-with-a-financial-advisor/
8. Envestnet 2024 Industry Research https://www.financial-planning.com/list/5-financial-advisor-trends-to-watch-in-2024
9. CNBC 2024 401k Mistakes Study https://www.cnbc.com/2023/11/30/dont-make-these-common-401k-plan-mistakes.html
10. Kiplinger 2024 401k Analysis https://www.kiplinger.com/retirement/retirement-planning/seven-401-k-mistakes-that-could-tank-your-retirement
11. Shortlister 401k Statistics 2025 https://www.myshortlister.com/insights/401k-statistics 

  

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8368962.1

Dentists know precision better than anyone. Every millimeter counts in the chair. Still, when the topic shifts to money, things get blurry fast.

You’re trained to care for people, not manage finances. You give everything to your work, put in the hours, and still sense something isn’t adding up.

Spreadsheets only go so far. You’ve built something substantial, and now it needs the same focus you bring to your work. Once your finances have that kind of attention, growth feels steady, not accidental.

The Income Illusion

According to the American Dental Association, general dentists earn an average of $180,000 annually, and specialists often cross $300,000. These are substantial numbers by any measure. Still, income alone rarely translates into lasting wealth.

Student loans, overhead, payroll, and taxes can turn even a thriving practice into a constant uphill run. The more the business grows, the more layered the decisions become.

From what I’ve seen, many dentists reach their 40s or 50s and realize they’ve built something remarkable but never mapped out where it’s all heading. The goal isn’t endless growth; it’s finding clarity, control, and purpose in how money works for you.

The Framework for Dental Wealth

Strong financial planning is not complicated, but it must be coordinated. Four key areas create the foundation for lasting wealth for dentists.

1. Practice Profit and Cash Flow

Your practice is the engine behind everything. When it runs efficiently, everything else follows.

Start by separating personal and business finances. It’s a small discipline that creates massive clarity. Understand your true margins, track overhead, and maintain 3-6 months of reserves for peace of mind.

After reaching stability, focus turns to direction. Each extra dollar needs intention, working toward growth, security, or freedom from debt.

2. Tax Strategy That Fits Your Reality

Dentists face unique tax challenges. The proper structure can save thousands each year. Entity choice, compensation mix, and retirement plan design all matter.

We’ve seen practices lower their effective tax rate by 4-6% simply by correctly aligning salary, distributions, and qualified plan contributions. That’s money that stays in your world instead of leaving it.

Collaboration isn’t optional. It’s how real progress happens. Your CPA and financial advisor should be in constant communication, not working in silos. Tax planning isn’t an April project. It’s an all-year conversation.

3. Retirement and Investment Planning

You deserve a clear path to independence, not burnout.

Building retirement security takes planning and consistency. A strong approach connects qualified retirement plans with diversified investments outside the practice. For most professionals, that includes:

• A 401(k) with profit sharing or a defined benefit plan
• A taxable investment account for flexibility
• A transition or sale plan for the practice itself

The sale of your practice can strengthen your future plan, especially when it’s part of a broader strategy that’s already working.

4. Risk and Protection

The work you do powers everything that follows. Protecting that income keeps the engine running when life throws a curve. Strong coverage means having:

Disability insurance tied to your specialty income

Updated malpractice and umbrella policies

Buy-sell agreements funded and reviewed every few years

Protecting your work is part of leadership. It’s how you preserve what matters most for those who rely on you.

The Common Drains on Dental Wealth

Substantial income and good investments can’t do much without alignment. Financial pieces need to work as one system, not separate parts.

Tax Overpayment

When advisors and accountants don’t coordinate, valuable deductions get missed. Aligning those teams can produce immediate results.

Idle Cash

Extra cash tends to be kept in checking accounts as a safety net. Keeping a solid reserve makes sense, but the rest should be used for investment, growth, or paying down debt.

Unplanned Exits

Delaying retirement planning costs leverage. Starting early builds control, clarity, and stronger outcomes when it’s time to step away.

The Three Phases of a Dental Career

Each stage of your career requires a different focus. The sooner you adapt your plan, the smoother your path.

Early Career (0–10 Years)

Focus on debt control and foundation building. Keep personal spending reasonable, pay down high-interest loans, and start small retirement contributions. Time, not timing, is what builds wealth.

Mid-Career (10–25 Years)

These years carry the most momentum. Expansion works best when it’s guided by intention. Each decision, from new equipment to a second location, moves you toward a defined goal.

Growth for the sake of growth often burns cash. Know your numbers and protect your margins.

Transition and Retirement (25+ Years)

Now the focus shifts to preservation and purpose. Start shaping your exit well before you plan to step away. Clean financials, updated systems, and consistent production all boost practice value.

Buyers put a premium on structure and clarity.

The Practice Sale Reality

Selling a practice is one of a dentist’s most significant financial moments. It deserves the same discipline you bring to complex clinical work: steady, structured, and carefully planned.

Buyers look for consistent revenue, organized financials, and strong hygiene programs. The less the business relies on you, the higher its value.

Start early and build systems that others can follow. Keep clear records. Each step adds freedom and lasting worth.

The Mindset Shift

Financial success begins with a clear vision of your future.

We’ve worked with many dentists who felt weighed down by financial uncertainty. The stress started to lift once their full picture, including investments, taxes, insurance, and estate planning, came together.

Effective planning transforms financial complexity into structure, direction, and confidence.

Building a Team That Works Like Yours

Your team runs like clockwork, with hygienists, assistants, and the front office all aligned. Your financial structure should operate similarly.

The Great Lakes Private Wealth approach connects tax, investment, retirement, and estate strategies within one unified framework.

Our role is straightforward. We help your money work with the same drive and purpose you bring daily. When every part of your financial life moves together, progress feels natural.

The Bottom Line

Dentistry demands focus and energy every day. Financial planning should bring clarity, not stress.

A coordinated strategy helps you keep more of what you earn, build confidence for retirement, and protect what you’ve worked so hard to create.

We don’t run our business on autopilot, and your financial plan shouldn’t either.

When your wealth feels scattered or uncertain, structure brings order and direction. The right plan can work with the same precision you expect from your practice.

Sources

1. American Dental Association – “The dentist workforce” https://www.ada.org/resources/research/health-policy-institute/dentist-workforce 

2. Bureau of Labor Statistics – “Occupational Outlook for Dentists” https://www.bls.gov/ooh/healthcare/dentists.htm 

3. Dental Economics – “Dentists: 7 steps to create a legacy that’s built to last” https://www.dentaleconomics.com/sponsored/document/14286958/dentists-7-steps-to-create-a-legacy-thats-built-to-last 

This information is for educational purposes and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. Individual results may vary. 8518278.1.

You’ve probably noticed that markets have a rhythm of their own. They rise, they fall, and sometimes they move in circles.

For many families, the real challenge is not the ups and downs but the uncertainty that follows. Those “what should I do now?” moments often feel heavier than the market swings.

Market volatility can feel unsettling, especially when savings and future plans are at stake. However, the picture becomes much clearer once you understand what drives those movements and how active management helps navigate them.

Let’s examine volatility in more detail, understand why it occurs, and consider how an active approach can help you remain confident and focused even when the headlines make it challenging to stay calm.

What “Market Volatility” Really Means

In simple terms, volatility measures how much and quickly investment prices move up or down.

Market conditions shape how prices move each day. In stable times, changes are usually modest, but they can become sharp and unpredictable during periods of higher volatility. Analysts often track this through the CBOE Volatility Index (VIX), known as the “fear gauge,” which measures expected market swings over the next month.

The Chicago Board Options Exchange data shows that the VIX has averaged around 19 over time. In moments of uncertainty, though, that number can quickly double or even triple. In 2020, at the pandemic’s peak, it briefly climbed above 80 (the highest level since 2008).

Volatility is not always negative. It is a regular part of how markets move through their cycles. However, when uncertainty grows during inflation surges, interest rate adjustments, or global conflicts, it often challenges investor confidence and patience.

Why Volatility Happens

Markets react to information. When that information is unclear or unexpected, prices adjust quickly. Some of the most common drivers of volatility include:

• Economic Data: Reports on inflation, employment, or GDP growth often spark market movement.

• Federal Reserve Policy: Interest rate changes influence everything from mortgage costs to corporate earnings.

• Corporate Earnings: Surprises, positive or negative, can move entire sectors.

• Geopolitical Events: Wars, trade disputes, or supply chain disruptions can trigger emotional reactions in global markets.

• Investor Behavior: Fear and greed remain two of the most powerful forces in finance.

Volatility will always occur. The advantage lies in knowing how to respond, and active management helps you do just that.

What It Really Takes to Manage Markets Actively

Behind the term “active management” lies something simpler and steadier than most imagine: paying attention. It means staying engaged, understanding the market’s shifts, and making thoughtful choices that reflect long-term goals.

In an actively managed portfolio, advisors take a continuous, hands-on approach. They review holdings, evaluate sectors, and adjust asset classes to align your investment strategy with your goals. The aim is to respond to meaningful changes with clarity and discipline rather than emotion. The process unfolds through a few essential steps:

1. Rebalancing regularly. Adjusting your portfolio when some investments grow faster than others, keeping your overall mix aligned with your target allocation.

2. Managing risk exposure. Reducing heavy concentrations in overvalued sectors and adding diversification where it strengthens stability.

3. Identifying opportunities. Volatile markets can create openings where quality investments become undervalued. Active managers work to recognize and act on those moments early.

4. Coordinating with your whole plan. Connecting investment choices with your broader financial picture, including taxes, cash flow, and long-term goals.

In a market that never moves in a straight line, active management helps investors stay focused, flexible, and ready to adjust.

The Human Side of Volatility

Over the years, guiding families through market ups and downs has taught me something important: volatility challenges the heart long before it challenges the numbers.

When a portfolio moves sharply, even briefly, that feeling of uncertainty can take over. The mind drifts into what-ifs instead of long-term goals, and that reaction is entirely human. Research shows that investors who check their accounts more frequently during volatile

periods are more likely to make emotional, short-term decisions that weaken long-term results.

According to Dalbar’s Quantitative Analysis of Investor Behavior (2024), the average equity investor trailed the S&P 500 by about 2% per year over the past two decades, mainly because of choices driven by fear or overconfidence, selling in downturns, and returning only after markets recover.

Active management brings clarity and steadiness when emotions run high, keeping every decision grounded in your long-term plan.

Turning Market Volatility Into Opportunity

Volatility is part of every market cycle. With active management, it becomes a chance to stay disciplined, adaptable, and focused on lasting goals.

1. Spotting Opportunity

Sharp market movements can create openings for investors who think ahead. Rebalancing or adding strong, high-quality assets when prices drop can strengthen a portfolio over time. Active managers help identify those moments and decide where new capital can make the most significant difference.

2. Flexibility Over Rigidity

Index-based strategies move automatically with the market. Active management allows thoughtful adjustments as conditions shift, such as reducing exposure to overheated sectors or adjusting international allocations. This flexibility helps portfolios stay aligned with changing realities.

3. Coordination That Adds Value

Active management also involves deciding when to realize gains or losses in taxable accounts. Coordinating investments with tax and income planning can improve efficiency and help keep a long-term strategy on course.

4. Personalization That Reflects Your Life

No two investors share the same story. Active management builds a plan that fits your life, aligning decisions with your goals and how you grow.

Putting Volatility in Perspective

Market history tells a reassuring story. Over the past 50 years, the S&P 500 has faced corrections (declines of 10% or more) roughly once every 20 months, based on data from CFRA Research. Even with those frequent setbacks, the market posted positive annual returns about 75% of the time.

Volatility reminds us that markets are alive and always moving. Businesses adapt, consumers adjust, and innovation keeps progress in motion. Those who stay invested long enough often see that movement turn into opportunity.

Active managers help investors stay steady through these cycles. We stay close to what drives market shifts daily so you can focus on the bigger picture. Most importantly, we ensure that your strategy continues to reflect your comfort level and long-term goals instead of reacting to short-term noise.

What You Can Do Right Now

Feeling uneasy about the market is more common than most people admit. What matters is taking small, intentional steps that bring clarity and confidence back to your plan.

1. Review your allocation. Make sure your level of risk still matches your goals. A quick portfolio check can reveal whether adjustments are needed.

2. Check your time horizon. Money you need soon should be in stable assets, not the stock market.

3. Simplify where possible. Consolidating accounts into one coordinated strategy can help reduce overlap and facilitate balance.

4. Stay curious. When something feels unclear, reach out and ask. Financial choices carry weight, and good decisions start with good conversations.

Remember, it’s not about reacting to today’s volatility. It’s about preparing for tomorrow’s goals.

Confidence Through Connection

When clients call during volatile markets, the first thing I do is listen. Then, we look at the plan together and discuss what’s happening, why it’s happening, and what (if anything) needs to change.

Most of the time, the emotion settles once we walk through the data. That’s what a financial partnership should feel like: accessible, steady, and focused on helping you understand, not just react.

True confidence carries you through market cycles. It grows from understanding what you own, why you own it, and how each decision supports your goals.

If you’d like to discuss how your portfolio is positioned for the current environment, or whether an active management approach makes sense, feel free to contact us anytime. That’s what we’re here for.

Sources

1. Chicago Board Options Exchange (CBOE) – CBOE Volatility Index (VIX) Historical Data https://www.cboe.com/tradable_products/vix/ 
2. CFRA Research – S&P 500 Historical Correction Data https://www.cfraresearch.com/ 
3. Dalbar, Inc. – Quantitative Analysis of Investor Behavior 2024 https://www.dalbar.com/ProductsAndServices/QAIB 
4. CFA Institute – Coaching Investors Beyond Risk Profiling: Overcoming Emotional Biases https://blogs.cfainstitute.org/investor/2025/09/16/coaching-investors-beyond-risk-profiling-overcoming-emotional-biases 
5. Forbes Advisor – Navigating Market Volatility With Confidence https://www.forbes.com/sites/davidkudla/2025/07/29/navigating-market-volatility-with-confidence 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8518268.1

Working with business owners over the years, I’ve noticed a familiar pattern: many successful entrepreneurs are experts at running their businesses but often overlook the bigger financial picture.

You might have your daily operations running smoothly, your cash flow managed, and your taxes handled by a good CPA. Those fundamentals are essential, but they’re just the starting point for comprehensive small business financial planning.

The most successful business owners I work with understand that their business isn’t just a source of income, it’s a wealth-building tool that should be coordinated with their personal financial goals. They’ve moved beyond basic business banking to create integrated strategies that serve both their business needs and their family’s long-term financial security.

Let me share what that comprehensive approach looks like and how it can make a meaningful difference in building business stability and personal wealth.

The Integration Challenge

One of the biggest opportunities with business owners is treating their business and personal finances as separate entities instead of coordinating them as part of an integrated strategy.

Your business financial decisions directly impact your personal financial situation, and vice versa. Effective small business financial planning recognizes and uses these connections to your advantage.

Cash Flow vs. Wealth Building

Managing monthly cash flow is essential for business survival, but it’s different from building long-term wealth. Many business owners get so focused on monthly operations that they miss opportunities for strategic wealth accumulation.

For example, how you pay yourself from your business (salary vs. distributions vs. retained earnings) has significant implications for your personal tax situation, retirement savings capacity, and overall financial planning.

Tax Strategy Coordination

Business and personal tax planning should work together, not against each other. The timing of income recognition, equipment purchases, retirement contributions, and other financial decisions can be coordinated to optimize your overall tax situation.

Some business owners make decisions that save business taxes but create personal tax problems, or vice versa. A coordinated approach often produces better overall results.

When Small Business Financial Planning Gets Complex

Based on experience working with various business owners, here are situations where business financial planning becomes more sophisticated:

Profitable Growth Management

Success creates new challenges. As your business grows, you face decisions about reinvestment, cash management, and scaling operations while maintaining profitability.

Growing businesses often experience cash flow timing issues even when they’re profitable. Revenue might increase, but you’re investing in inventory, equipment, staff, and facilities. Managing this growth cycle requires careful planning.

Business Structure Optimization

Many businesses start as sole proprietorships or simple LLCs, but as they grow, different entity structures might provide better tax advantages or liability protection.

The choice between S-Corp elections, traditional corporations, or other structures depends on your income level, growth plans, and personal financial goals. These decisions have long-term implications for both business operations and personal wealth building.

Employee Benefits and Retirement Plans

As you add employees, you face health insurance, retirement benefits, and other compensation decisions. These choices affect your business expenses, benefits, and ability to attract quality staff.

Some business owners don’t realize they can structure employee benefits in ways that provide maximum advantage to themselves while still offering meaningful benefits to their team.

Key Components of Comprehensive Business Financial Planning

When we work with business owners on small business financial planning, here’s what that typically includes:

Cash Flow Management and Forecasting

This goes beyond basic budgeting to include seasonal planning, growth funding, and maintaining appropriate cash reserves.

Many businesses have seasonal fluctuations or cyclical patterns that require planning. Systems predicting and managing these patterns can prevent cash flow crises and reduce stress.

Business and Personal Goal Coordination

Your business should serve your personal financial goals, not work against them. This means aligning business growth plans with your retirement timeline, family financial needs, and lifestyle objectives.

For example, if you want to retire in 15 years, your business strategy should include building transferable value and planning for succession or sale.

Risk Management

Business insurance, liability protection, and financial risk management become more critical as your business and personal wealth grow.

This includes evaluating business insurance coverage, personal liability protection, and coordination between business and personal insurance policies to avoid gaps or unnecessary duplication.

Exit Planning and Succession

Even if retirement is decades away, thinking about how you’ll eventually transition out of the business affects current financial decisions.

Building a business that can operate without you, creating transferable value, and planning for succession (whether to family, employees, or third parties) takes time and should influence current business structure decisions.

The Owner’s Compensation Strategy

One area where I see significant opportunities is how business owners pay themselves. This decision significantly affects taxes, retirement savings, and personal financial planning.

Salary vs. Distributions

The mix of salary and distributions affects your payroll taxes, Social Security benefits, and retirement plan contribution capacity. The optimal approach depends on your business structure, income level, and personal financial goals.

Timing of Distributions

Taking money out of the business can affect your personal tax situation. Strategic timing of distributions can help manage tax brackets and coordinate with other income sources.

Retirement Plan Maximization

Business owners often have access to more powerful retirement savings options than employees, including SEP-IRAs, solo 401(k)s, and defined benefit plans. The choice depends on your income, number of employees, and retirement timeline.

Some business owners can contribute significantly more to retirement accounts than they realize, potentially saving substantial amounts in current taxes while building retirement security.

Common Business Financial Planning Mistakes

Based on working with numerous business owners, here are patterns I see that can be costly:

Keeping Everything in the Business

Some owners accumulate large cash balances in business accounts instead of taking strategic distributions and investing for personal wealth building. While maintaining working capital is important, excessive business cash doesn’t typically provide optimal investment returns.

Ignoring Personal Financial Goals

Business owners sometimes get so focused on business growth that they neglect personal financial planning. Your business should be a vehicle for achieving personal financial security, not an end in itself.

Mixing Business and Personal Expenses

While some mixing is unavoidable, maintaining clear boundaries helps with tax compliance and makes business financial analysis more accurate. It also helps when planning for a business sale or transfer.

Inadequate Record Keeping

Financial records are essential for tax compliance, business analysis, and eventual valuation. Many owners don’t realize that poor record keeping can significantly reduce business value when it’s time to sell.

Technology and Business Financial Planning

Modern business owners have access to financial management tools that can significantly simplify business financial planning:

Automated Accounting Systems

Cloud-based accounting platforms can automate many bookkeeping tasks and provide real-time financial reporting. This saves time and provides better information for economic decision-making.

Cash Flow Forecasting Tools

Software that connects to your bank accounts and accounting system can provide cash flow projections and help identify potential problems before they become critical.

Integration Between Business and Personal Planning

Some financial planning tools can analyze business and personal financial situations together, providing a more complete picture for decision-making.

However, technology has limitations. While these tools can organize information and perform calculations, they typically can’t provide strategic guidance for complex situations or help coordinate business decisions with personal financial planning.

Working with Professional Advisors

Most successful business owners work with a team of professional advisors, including:

CPA or Tax Professional

Someone who understands business tax law and can help coordinate business and personal tax strategies.

Attorney

For business structure, contracts, and legal compliance issues.

Financial Advisor

To help coordinate business financial decisions with personal wealth building and retirement planning.

Business Banker

A banker who understands business banking needs and can provide appropriate credit facilities and cash management services.

The key is finding advisors who understand how these different areas connect and can work together rather than in isolation.

Questions to Consider

Here are some questions that might help you evaluate your current small business financial planning approach:

About Your Strategy:

• Do you have written financial goals for both your business and personal situation?
• How do you coordinate business financial decisions with personal financial planning?
• When did you last review your business structure for tax efficiency?

About Your Operations:

• Do you have reliable cash flow forecasting?
• Are you taking advantage of available retirement savings opportunities?
• How do you determine the optimal way to pay yourself from the business?

About Your Future:

• What’s your plan for eventually transitioning out of the business?
• Are you building transferable business value?
• How does your business timeline coordinate with your retirement plans?

If you’re uncertain about several of these areas, it might be worth having a conversation with advisors who specialize in business financial planning.

The Coordination Advantage

The most successful business owners I work with consider business financial planning part of their overall wealth-building strategy. They understand that business decisions and personal financial decisions are interconnected.

This coordinated approach often produces better results than managing business and personal finances separately. It can reduce overall taxes, improve cash flow timing, and help ensure business success translates into personal financial security.

Making It Work for Your Situation

Small business financial planning isn’t one-size-fits-all. A solo consultant has different needs than a growing manufacturing business. A service business has different considerations than a retail operation.

The important thing is having a systematic approach that addresses your specific situation and coordinates business and personal financial goals.

Your business is likely one of your largest assets and your primary source of income. Making sure it’s structured and managed to support your overall financial goals is worth the time and effort.

We keep our finger on the pulse of both business and personal financial planning because they’re too interconnected to manage separately.

What you see is what you get: if your business financial planning only covers basic banking and tax compliance, you’re missing opportunities to build wealth more effectively.

The key is a comprehensive approach recognizing the connections between business success and personal financial security.

Sources

1. Small Business Administration – Business Guide https://www.sba.gov/business-guide 
2. Internal Revenue Service – Small Business and Self-Employed https://www.irs.gov/businesses/small-businesses-self-employed 
3. U.S. Chamber of Commerce – Small Business Resources https://www.uschamber.com/co/start/strategy 
4. SCORE – Small Business Mentoring https://www.score.org 
5. National Association of Small Business Investment Companies https://www.nasbic.org 
6. Small Business Development Centers https://americassbdc.org 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8433595.1.

Keywords: small business financial planning, business financial planning

Meta Description: Comprehensive financial planning strategies for small business owners. Learn how to coordinate personal and business financial goals.

One of your most important investment decisions isn’t picking individual stocks or timing the market. It’s choosing between active management and passive management strategies for your portfolio.

This choice affects how much you pay in fees, the level of risk you take on, and ultimately, how much money you’ll have for retirement. After working with families for decades, I’ve seen both approaches work well and fail spectacularly, depending on the situation.

Let me explain the fundamental differences between these strategies and help you determine which approach might work better for your specific circumstances.

Understanding Active Management

Active management means professional portfolio managers make investment decisions to outperform a specific benchmark or index.

These managers research companies, analyze economic trends, and make buy and sell decisions based on their analysis. They’re betting they can beat the market through superior stock selection and timing.

How Active Management Works

Active managers typically employ teams of analysts who study financial statements, interview company executives, and evaluate market conditions. Based on this research, they decide which securities to buy, sell, or hold in the portfolio.

The goal is straightforward: deliver returns that exceed what you’d get from simply buying and holding a broad market index.

Active Management Strategies

Active managers use various approaches:

Growth Investing: Focusing on companies expected to grow faster than the overall market

Value Investing: Seeking undervalued companies trading below their intrinsic worth

Sector Rotation: Moving money between different industries based on economic cycles

Market Timing: Adjusting portfolio allocation based on market conditions

Understanding Passive Management

Passive management takes the opposite approach. Instead of trying to beat the market, passive management strategies aim to match market performance by tracking a specific index.

The most common passive approach is index fund investing, where the fund owns the same securities in the same proportions as a particular index, like the S&P 500.

How Passive Management Works

Passive funds use a rules-based approach. If you own an S&P 500 index fund, the fund manager buys all 500 stocks in the same weightings as the index.

The fund makes corresponding changes when companies are added to or removed from the index. No research team analyzes individual companies or tries to time market movements.

Types of Passive Investments

Index Funds: Mutual funds that track specific indexes

Exchange-Traded Funds (ETFs): Tradeable funds that typically track indexes

Target-Date Funds: Automatically adjust allocation based on retirement timeline

The Cost Difference

This is where the rubber meets the road for most investors.

Active Management Costs

Active management is expensive. Active funds have a higher expense ratio than passive funds, as they incur more costs for the fund manager’s expertise, research, and trading.

You’re paying for:

• Portfolio managers’ salaries
• Research teams and analysts
• Trading costs from frequent buying and selling
• Administrative overhead

Typical expense ratios for actively managed funds range from 0.5% to 2.0% annually, with many falling in the 0.8% to 1.2% range.

Passive Management Costs

Passive management strategies are much cheaper to operate. Usually, the average for passively managed ETFs and mutual funds is between 0.03% and 0.3%.

The lower costs exist because passive funds don’t need:

• Expensive research teams
• Frequent trading
• Active portfolio management decisions

Why Costs Matter

Here’s a simple example: On a $100,000 portfolio, the difference between a 0.1% expense ratio and a 1.0% expense ratio is $900 per year. Over 20 years, that difference compounds significantly.

The enemy of good is perfect, but keeping costs low is one of the few things you can control when investing.

Performance Comparison

The performance debate between active and passive management is complex and often misunderstood.

The Long-Term Picture

While active fund managers in the Eurozone saw a short-term increase in success, their long-term performance was poor, with only 4.7% of them outperforming their benchmark over 10 years.

This statistic reflects a broader pattern: while some active managers outperform in short periods, very few consistently beat their benchmarks over extended timeframes after accounting for fees.

Market Conditions Matter

Active management strategies have tended to benefit investors more in certain investing climates, while passive management strategies have tended to outperform others. For example, when the market is volatile or the economy is weakening, active managers may outperform more often than when it is not.

Active management has typically outperformed passive management during market corrections, because active managers have captured more upside as the market recovers.

This suggests that neither approach works best in all market conditions.

The Shifting Landscape

According to a study by Statista, passively managed index funds only comprised 19% of the total assets managed by investment companies in the U.S. in 2010. Still, this share had ballooned to 48% by 2023.

This massive shift toward passive management reflects investor frustration with active management fees and performance, but it also creates potential opportunities for skilled active managers.

Tax Efficiency

This aspect often gets overlooked, but it can significantly impact your after-tax returns.

Passive Management Tax Advantages

Index funds and ETFs are generally more tax-efficient because they trade less frequently. Lower turnover means fewer taxable events for shareholders.

Most passive funds only buy and sell securities when the underlying index changes, which happens infrequently.

Active Management Tax Considerations

Active managers’ frequent trading can generate more taxable capital gains distributions, especially in taxable accounts. These distributions occur whether you sell your shares or not.

However, tax-managed active funds specifically focus on minimizing tax consequences, which can help reduce this disadvantage.

When Active Management Might Make Sense

Market Inefficiencies

In less efficient markets, like small-cap stocks or emerging markets, skilled active managers may have better opportunities to add value through research and stock selection.

Specialized Strategies

Some investment strategies don’t lend themselves to passive approaches:

• Specific sector expertise
• Alternative investments
• Risk management-focused strategies

High-Net-Worth Situations

Wharton finance professor Jeremy Siegel strongly believes in passive investing, but he recognizes that high-net-worth investors have access to advisers with stronger track records. In that case, a management fee is not as burdensome.

Wealthy investors may have access to top-tier active managers with strong long-term track records.

When Passive Management Makes More Sense

Broad Market Exposure

For core holdings in large-cap U.S. stocks, passive management strategies have consistently delivered market returns at low cost.

Cost-Conscious Investors

If keeping investment costs low is prioritized, passive management strategies typically offer the most cost-effective market exposure.

Long-Term Investors

Investors with 10+ year time horizons often benefit from passive management strategies’ lower costs and consistent market exposure.

Simplified Portfolio Management

Passive approaches require less monitoring and decision-making, which appeals to investors who prefer a hands-off approach.

The Hybrid Approach

Many successful portfolios strategically use both active management and passive management strategies.

Core and Satellite Strategy

This approach uses low-cost passive funds for core market exposure (maybe 70-80% of the portfolio) and active strategies for smaller positions in specialized areas where active management might add value.

Asset Class Specific

You might use passive management strategies for efficient markets (large-cap U.S. stocks) and active management strategies for less efficient markets (small-cap international stocks).

Common Misconceptions

“Passive is Always Cheaper”

While passive management strategies are generally less expensive, not all passive funds are cheap. Some specialty index funds can have surprisingly high expense ratios.

“Active Managers Always Underperform”

While most active managers underperform after fees over long periods, some consistently skilled managers add value. The challenge is identifying them in advance.

“Index Funds Eliminate All Risk”

Passive funds still carry market risk. If the S&P 500 drops 40%, your S&P 500 index fund drops 40% too.

Making the Decision

Consider Your Situation

Investment Amount: Large portfolios may justify higher fees for active management access

Time Horizon: Longer timeframes generally favor lower-cost passive approaches

Risk Tolerance: Some investors prefer the potential for active managers to reduce downside risk

Complexity Preference: Passive management strategies require less ongoing decision-making

Questions to Ask Yourself

About Costs: Am I comfortable paying higher fees for potential outperformance?

About Control: Do I want professional managers making active decisions, or do I prefer market exposure?

About Time: How much time do I want to spend researching and monitoring managers?

About Performance: Am I satisfied with market returns, or do I need to try for better?

Implementation Considerations

Due Diligence for Active Managers

If you choose active management, research is critical:

• Review long-term track records (10+ years)
• Understand the manager’s investment process
• Evaluate fee structures carefully
• Consider manager tenure and stability

Passive Strategy Selection

Even passive management requires decisions:

• Which indexes to track
• Expense ratio comparisons
• Fund provider selection
• Rebalancing frequency

The Bottom Line

Active and passive management can work, but serve different purposes and investor needs.

Passive management strategies offer low-cost market exposure with no manager risk, making them excellent core holdings for most investors. They’re particularly effective in efficient markets and for long-term investors focused on keeping costs low.

Active management can add value in less efficient markets or through specialized strategies, but success depends heavily on manager selection. The higher costs mean active managers must outperform significantly to justify their fees.

A combination approach makes sense for most families I work with: passive management strategies for core market exposure and selective active management in areas where skilled managers might add value.

Things happen for you, not to you. But whether you choose active management or passive management, make sure your choice aligns with your goals, timeline, and comfort level with costs and complexity.

We don’t run our business on autopilot, and your investment strategy shouldn’t run on autopilot either. Whatever approach you choose, ensure you understand what you’re paying for and getting.

Sources and Additional Information

1. Morningstar: Active vs. Passive Funds Performance https://www.morningstar.com/business/insights/blog/funds/active-vs-passive-investing 
2. Hartford Funds: The Cyclical Nature of Active & Passive Investing https://www.hartfordfunds.com/insights/market-perspectives/equity/cyclical-nature-active-passive-investing.html 
3. Morgan Stanley: A New Take on the Active vs. Passive Investing Debate https://www.morganstanley.com/articles/active-vs-passive-investing 
4. The Motley Fool: Active vs Passive Investing Differences https://www.fool.com/investing/how-to-invest/active-vs-passive-investing/ 
5. Vanguard: What is an Expense Ratio? https://investor.vanguard.com/investor-resources-education/education/expense-ratio 
6. Bankrate: What Is An Expense Ratio And What’s A Good One? https://www.bankrate.com/investing/what-is-an-expense-ratio/ 
7. Thrivent: Active & Passive Fund Management Differences https://www.thriventfunds.com/insights/mutual-fund-focus/active-passive-fund-management-whats-the-difference.html 
8. S&P Global: The Active vs. Passive Debate https://www.spglobal.com/en/research-insights/articles/the-active-vs-passive-debate 
9. Wharton: Active vs. Passive Investing Returns Analysis https://executiveeducation.wharton.upenn.edu/thought-leadership/wharton-wealth-management-initiative/wmi-thought-leadership/active-vs-passive-investing-which-approach-offers-better-returns/ 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8434413.1.

Meta Description: Compare active and passive investment strategies for wealthy investors. Learn the differences between approaches and considerations for each.

Keywords: active management, passive management