While most people believe great wealth would alleviate all the problems in the world, the wealth itself creates a different set of pressures.
When working with wealthy investors, advisors need to remind themselves that these clients are not without issues that cause them headaches, and must do what they can to help alleviate the pain that comes with great wealth.
Spectrem’s new study – The Wealthiest Americans – reveals that investors with a net worth over $25 million have problems related to their wealth beyond telling their third cousin they cannot help finance their luxury ant farm.
Many of the issues these very wealthy investors have relate to wealth transfer. Although no one has been able to confirm this, it is standard operating theory that you can’t take it with you when you die, and most investors want to make sure their assets are transferred without difficulty to the next generation, or even two generations removed.
Ninety-one percent of $25 million plus investors have a trust, and 80 percent of those investors have more than one trust. It would follow that investors with trusts have answered many of the questions that come with wealth transfer, but some investors probably worry if they are making the right move by operating as a self-trustee (21 percent) or having their spouse or child serve as trustee (more than 50 percent). Investors have many reasons they do not “trust’’ institutional trust services, but that does not equate to a complete elimination of concern over how the trust is being administered.
Many wealthy investors have already begun the process of wealth transfer, with annual gifts and other disbursements, in order to avoid estate taxes. But many of those same investors may wonder if they are complete that action properly and with the least amount of conflict and confusion. Advisors should regularly review the wealth transfer operations of a client, even if they are not directly involved in those maneuvers.
But there is one area of concern for wealthy investors related to wealth transfer where advisors can provide some very specific guidance.
According to The Wealthiest Americans, 74 percent of $25 million plus investors worry about how the next generation is going to handle the wealth they are going to eventually receive. Those investors may not know for certain their children or grandchildren are going to waste the money by investing in their cousin’s luxury ant farm, but it is understandable that they would worry about such behavior.
That’s where the advisors can come in.
Most wealthy investors want their primary advisor to have a relationship with their family. They differ, perhaps, in when to introduce their advisor to their children, but most of them believe there is a benefit to creating a relationship between the advisor and the children.
Part of that relationship, in the eyes of two-thirds of wealthy investors, is a process that provides a financial education for the children. A majority of investors consider educating their children and grandchildren on the complexities of great wealth as a major contribution their advisors should provide.
Investors may have a different approach for that education to take place. They can want advisors to school the children themselves through one-on-one meetings, or they can want the advisors to find and provide the kind of reading material that can present the facts in a way that the children can understand.
But these investors want advisors to play a role in the financial literacy education of their children. They are not waiving their own responsibility; they hold themselves ultimately responsible, but they do want advisors to play a role, because advisors have knowledge the investor may not have.
When dealing with extremely wealthy investors, advisors should be prepared to explain how they could best educate the investor’s offspring. Being proactive in discussing the topic will serve to indicate a desire to help, which the investors will prefer over being forced to ask for help in dealing with this delicate subject. It may also lead to a professional relationship with the offspring being educated.
© 2018 Spectrem Group