How Flat Fee Financial Advisors Can Guide HNW Clients into Managed Real Estate Ownership

by | Aug 7, 2023 | Accredited Investor, Blog, Real Estate Investing | 0 comments

Personal financial advisors typically fall into one of two categories: commission-based and fee-based. The latter is also known as fee-only. When looking for financial planning services, this is one of the factors that individuals should consider, especially if they are looking for investment advice.

The method of compensation may influence the type of advice financial advisors give to their clients. For example, although real estate is known to be a potentially lucrative investment vehicle, not many financial advisors will actually recommend it to their clients because they won’t get any commission from it.

Fee only financial advisors do not rely on commissions, and so they can give proper advice without any conflict of interest.

If a certified financial planner or financial advisor is fee-only, this means they only receive compensation from the fees clients pay for their services, whether it’s investment management services or financial planning.

A fee only wealth advisor can create budgets, help you plan your retirement, pay down debt, and assist you in achieving your financial goals. It is their job to guide you towards your financial milestones. [1]

With fee-only wealth managers, you do not have to worry about hidden costs, referral fees, commissions, and kickbacks. You only have to pay financial advisor fees, and that is the preferable payment structure for most investors.

Here we will discuss how flat fee financial advisors can help high net worth individuals (HNWIs) get started on managed real estate ownership.

Why Fee-Based Financial Advisors Love Multifamily Real Estate for Accredited Investor Clients

The exact threshold can vary, but in most cases it refers to individuals with a net worth of at least $1 million, excluding their primary residence. However, some organizations may set higher thresholds, such as $5 million or $10 million.

It’s worth noting that there are further categories within the HNWI segment based on the level of wealth. These include Ultra-HNWIs (UHNWIs) and Very-High-Net-Worth Individuals (VHNWIs), which represent individuals with even greater levels of wealth, typically in the range of tens or hundreds of millions of dollars or more.

For HNWIs, investment management is very important. This is why they are often the target audience for financial institutions, wealth management firms, and financial planners. They have the financial capacity to invest in various asset classes, including stocks, bonds, real estate, and private equity.

But for the sake of wealth management, HNWIs should consider working with fee-only financial advisors so that they can minimize conflict of interest.

Real estate is certainly a viable option for HNWIs due to things like diversification, passive income, strong cash flow, tax advantages, and the potential for long-term appreciation.

However, commission-based financial advisors may not recommend real estate investing because they will not get compensated from real estate deals. The current compensation system does not reward financial advisors for convincing clients to get into real estate. This is why they tend to stick with securities like stocks, bonds, mutual funds, and insurance products.

HNWIs need to work with a flat fee only financial advisor who can help them navigate real estate investing.

On that note, fee-based financial planners may gravitate towards multifamily real estate because there is no conflict of interest, plus it can give their clients several benefits.

Regular investors may go for single family properties to generate passive income, but HNWIs have the capacity to purchase multifamily properties and enjoy an even stronger cash flow due to the number of units.

Fee-based financial advisors play a crucial role in assessing the suitability of multifamily real estate investments for their HNW clients and ensuring that they align with their overall financial goals and risk tolerance.

What is a Flat Fee Financial Advisor?

A fee only financial planner is paid a set rate for the services they provide. This is the opposite of a commission-based financial advisor who earns through commissions on the products that they sell or trade. [2]

The services offered by a flat fee financial advisor can vary, but they often include comprehensive financial planning, investment advice, retirement planning, tax planning, estate planning, and other financial guidance. Clients typically receive personalized advice tailored to their specific needs and goals.

There are many benefits to someone who is compensated solely by what they charge. They offer transparency, no hidden charges, and no conflicts of interest. The best part of working with fee only financial advisors is knowing they are there to serve your best interests.

The downside is that fee-only advisors tend to be more expensive, but this is no problem for HNWIs.

Fee-only financial planners may charge clients in different ways, but the most common involves charging a certain percentage of the client’s assets under management (AUM). These are the funds that the financial advisor is responsible for handling. [1]

Some financial planners who use flat fees as their method of compensation charge an hourly rate or even a monthly rate.

Keep in mind that the exact cost will depend on the financial planner’s preferred fee structure, their experience level, the client’s location, and the services they require. [1]

What is an Accredited Investor?

Some financial advisors only work with HNWIs and accredited investors. It’s worth taking a closer look at the definition of accredited investors.

For companies that are raising capital, the definition of accredited investor determines who is in their pool of prospective investors. A lot of offerings that are restricted by federal securities laws are only accessible to accredited investors. Non-accredited investors may be prohibited from participating in these securities because of their risky nature or high cost of entry. [3]

An individual or entity does not have to go through any particular process in order to get accredited. As long as they meet the definition, they are already considered accredited. The burden of confirming your status as an accredited investor falls on the company that is offering unregistered securities.

There are financial and professional criteria that determine whether or not someone qualifies as an accredited investor, as well as some other measures of financial sophistication.

On a financial level, an investor is considered accredited if they have a net worth over $1 million, excluding their primary residence. This net worth can be achieved individually or with a spouse or partner. [3]

Alternatively, having an annual income over $200,000 individually or $300,000 with spouse or partner in each of the prior two years also means that they are accredited. However, there must also be a reasonable expectation that they will earn the same for the current year. [3]

As for the professional criteria, investment professionals who are holding the general securities representative license (Series 7, the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82) are considered accredited investors if they are in good standing.

Also included are directors, general partners (GP), and executive officers of the company selling the securities. Knowledgeable employees of a private fund, entities owning investments in excess of $5 million, and family offices are also considered accredited investors. [3]

Because accredited investors meet certain financial criteria, they are deemed to have the knowledge and experience to participate in certain investment opportunities that are not available to the general public.

In the US, the criteria to qualify as an accredited investor are defined by the Securities and Exchange Commission (SEC) under Regulation D of the Securities Act of 1933.

What is Managed Real Estate?

Many investors consider real estate to be one of the best long term investment opportunities, ahead of stocks, bonds, and gold. And when it comes to real estate investing for HNWIs and accredited investors, one of the best strategies is multifamily investing.

Apartment complexes, townhouses, and condominiums are known for their strong and reliable cash flow. Even if one or two units become vacant, the remaining units can still produce income.

There is also a constant demand for multifamily real estate because people always need a place to live. This means multifamily properties in urban areas or regions with growing populations are generally stable.

Investors also get to enjoy economies of scale, diversification, tax benefits, and long-term appreciation.

However, even multifamily real estate has its drawbacks. The biggest one is the fact that these properties are generally more expensive because of their size and number of units. Even if HNWIs and accredited investors can afford them, they may still hesitate to make such a large purchase.

Buying a multifamily property is usually a huge commitment in terms of property management and making sure the building is actually profitable. Being a landlord is not something a lot of investors have experience with. It also comes with plenty of tasks such as collecting rent, handling tenant concerns, managing repairs, etc.

A professionally managed real estate is much more convenient. Managed real estate refers to the practice of professionally overseeing and operating real estate properties on behalf of property owners or investors.

It involves the day-to-day management of various types of real estate assets, such as residential, commercial, retail, or industrial properties. The goal of managed real estate is to maximize the value and return on investment of these properties while minimizing the owner’s involvement and responsibilities.

Property management companies take on various responsibilities including: tenant acquisition and relations, property maintenance, financial management, marketing and advertising, and asset performance analysis.

Managed real estate allows investors to enjoy the benefits of multifamily investing without having to put in as much time and effort into the investment. Instead of dealing with all the hassles of tenants and property management, investors can leave it to the pros. Now they can spend their time doing more important things. [4]

Why Ultra HNW People Love Multifamily Syndication

High net worth individuals have the option to purchase multifamily properties and then just hire a property manager to handle the day-to-day operations. But there is another option that is highly appealing to investors, particularly HNWIs and accredited investors: multifamily syndication.

Investing in real estate syndication is still a viable option for investors looking to diversify their portfolio with passive income from real estate. Multifamily syndication deals are often exclusive to accredited investors and HNWIs, and so they get to enjoy an alternative investment that is outside of the typical Wall Street options. [5]

With multifamily syndication, multiple investors pool their resources together through a deal that is organized by a syndicator, in order to purchase a large multifamily property. Whether or not they can afford to buy an apartment building all on their own, this approach is usually more ideal because it’s a passive investment and a surefire way to save time while still investing in real estate. [5]

According to the Internal Revenue Service, passive income is defined as any money generated from rental or business activity in which the first receiver makes “income from a business in which the taxpayer does not materially participate”. [5]

In a syndication deal, passive investors act as Limited Partners (LPs) who may or may not have the experience or time to handle these multifamily projects themselves.

In this case, the syndicator—also known as the General Partner—does everything that is related to the project, from putting the deal together to managing the property. The investors only have to provide most of the capital needed to purchase the property. They can earn from their share of the monthly cash flow, and depending on the deal structure, a share of the appreciation upon resale.

Limited Partners get a major economic advantage while also saving time and energy. This is a true passive income, and that is incredibly rare. [5]

With multifamily syndication, accredited investors can continue building their wealth without actually spending any time on the property at all. They don’t have to play the landlord role and deal with all the headaches that come with that title. This is what makes multifamily syndication such an attractive investment opportunity for high net worth clients of financial advisors.

How Flat Fee Financial Advisors Can Guide HNW Clients into Managed Real Estate Ownership

Flat fee financial advisors can play a crucial role in guiding high-net-worth (HNW) clients into managed real estate ownership. By providing their expertise and comprehensive financial guidance, they can help clients navigate the complexities of real estate investment and make informed decisions.

Financial advisors tend to work closely with HNW clients to develop a comprehensive financial plan that aligns with their investment goals and risk tolerance. They will assess the client’s financial situation, including their income, expenses, assets, and liabilities, to determine how real estate investment fits into their portfolio.

They may specifically recommend multifamily syndication, knowing that it offers plenty of benefits for those who have a high net worth and annual income.

Because flat fee only financial advisors do not have any conflict of interest, they are more inclined to recommend real estate investment opportunities, including multifamily syndication.

Financial advisors can help clients identify reputable property management companies or professionals who can handle day-to-day property operations, tenant management, and maintenance. By outsourcing these responsibilities, HNWIs can enjoy the benefits of real estate ownership without the burden of active management.

Real estate transactions require comprehensive due diligence to mitigate risks and ensure the client’s interests are protected. Flat fee financial advisors can assist with due diligence by examining property documents, conducting property inspections, reviewing leases, and assessing the financial viability of the investment.

By leveraging their expertise in financial planning, investment analysis, and risk management, flat fee financial advisors can guide HNW clients into managed real estate ownership with a focus on long-term growth and wealth preservation.

Why Work with BAM Capital for Multifamily Syndication

Multifamily syndications are typically private entities and are not publicly traded. A syndicator puts the deal together and locates passive investors to participate in the deal. The investors will provide most of the capital needed to acquire the property, in exchange for a share of the monthly cash flow.

With this alternative investment, accredited investors can just sit back, relax, and collect their checks. Do keep in mind that just like any other investment, multifamily syndication carries risks. Investors should carefully evaluate the specific syndication opportunity before making any investment decisions.

Chances are, your financial advisor will help you look for a trustworthy syndicator for your multifamily syndication. Just like any other investment, multifamily syndication requires due diligence. With the help of financial professionals, you can find a company that has a consistent track record.

Your financial advisor may even recommend working with BAM Capital.

BAM Capital is an Indianapolis-based multifamily syndicator with a strong Midwest focus. It now has over $700 million AUM and 5,000+ units. Accredited investors and HNWIs love BAM Capital’s approach that mitigates risk while creating forced appreciation. [6]

BAM Capital focuses on high quality multifamily properties that are Class A, A-, and B++, especially those that have proven upside potential and in-place cash flow.

This company is also vertically integrated, meaning they can handle each step of the syndication process. They will guide you from start to finish: from acquiring and purchasing the multifamily property to renovating and managing it. [6]

If you are looking for a syndicator with a proven track record and an award-winning investment strategy, look no further than BAM Capital.

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.