Money management, estate planning advice from top wealth manager

Peter Mallouk is the president of Creative Planning, a $40 billion wealth management firm.

He's been named the best wealth manager in the US by Barron's, but he says there are times when clients are reluctant to take his advice.

Mallouk told Business Insider he's seen clients who don't want to diversify away from a single outperforming stock or get started on estate planning — and explains the reasons for their hesitation.

The fact that investors can struggle to implement basic tactics shows how important it is to be aware of hangups that can get in the way of a strategy that's likely to work over the long term.

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Peter Mallouk 's clients listen to him, and they should: He's repeatedly been named the best wealth manager in the US.

But sometimes it's a struggle.

Mallouk is the president and chief investment officer of Creative Planning, which manages more than $40 billion. That makes it the largest independent wealth-management company in the US. Barron's has ranked Mallouk the nation's best wealth manager four times, while Creative Planning topped the rankings for firms in 2017.

Still, he says clients are sometimes reluctant to let him employ important strategies. His struggles show just how difficult it can be for investors to overcome their feelings about how their money is managed — and why it can be a good idea to have someone assist you in that task.

Mallouk says one of the biggest things clients hesitate to do is diversify their portfolios when they're concentrated in a single investment. He notes that there are often psychological barriers that stop investors from completing the task.

“Usually the reason is, it became concentrated because they work there, so they feel like they have inside information, or that they know the company really well,” he told Business Insider in an interview.

Read more: America's biggest wealth manager for the ultrarich is known for his tailor-made portfolios. He revealed to us his magic formula — and how he saves clients millions on taxes.

He also offers a second possible reason:

“It became a concentrated positions because it did really well,” Mallouk said. “It was their best performing stock, so human nature says 'why in the world would I unload this？'”

Read more: America's biggest wealth manager for the ultrarich is known for his tailor-made portfolios. He revealed to us his magic formula — and how he saves clients millions on taxes.

But no stock succeeds forever, and the more concentrated that person's portfolio is in a single company, the more vulnerable it becomes to an eventual decline. That's why Mallouk says diversifying will help make a portfolio safer and improve their returns over time.

Once the client is on board, Mallouk gradually reconfigures his or her portfolio to reduce their risk.

Getting people to look beyond stock market headlines can also be a challenge. Mallouk says it's easy to look at news flashes about US stock records and assume that the best market strategy involves owning nothing but large US stocks or Dow Jones Industrial Average components.

“We are going through a rare period where that has outperformed everything and it actually can improve expected return and lower risk to diversify into other markets,” he said.

Another thing a lot of investors don't want to think about is death. But figuring out what happens after you pass away is extremely important, especially if you have considerable wealth.

“It's great that you're investing your money, but the biggest financial event of your life unfortunately is your death,” Mallouk said.

While people can reflexively avoid topics related to death, Mallouk argues that estate planning isn't as difficult or time-consuming as people think. But it's worth doing promptly and the details matter.

“The investments in your portfolio should match the plan. An IRA should be managed differently than a trust account,” he said. “You really want to make sure that you're investing your whole portfolio in a way that makes it more tax smart.”