They are called First World Problems: a trivial or minor problem or frustration (implying a contrast with serious problems such as those that may be experienced in the developing world).”
Extremely wealthy investors have First World Problems. They are problems less affluent people would love to have. But they are vexing matters all the same, and if you are an advisor working with an extremely wealthy investor, you need to know just how vexed your client is by the problems that follow the wealthiest Americans.
However, you are in luck, because Spectrem has conducted research on the issues that bother the wealthiest Americans.
In its study, aptly titled The Wealthiest Americans, Spectrem asked investors with a net worth over $25 million to talk about the difficulties that come with being wealthy. The responses can play a role in advising those investors in an attempt to rectify their concerns.
“Certainly, most investors would love to have the problems the wealthiest investors have in terms of finances,’’ said Spectrem president George H. Walper Jr. “But some of the problems discussed in the study are matters that advisors can assist with, especially in terms of wealth transfer and educating the family’s next generation.”
The last point – educating younger family members, is directly addressed in the study when investors are asked to respond to the statement “I am concerned about the next generation being wasteful with the money I pass on to them.” More than half (56 percent) of all investors responded “Yes’’ to that statement, and that includes 73 percent of those investors who are 50 years of age and younger.
Those younger wealthy investors may have offspring that are still children, and still being molded in terms of their financial knowledge. Advisors are able to assist those investors by providing educational material or even one-on-one meetings to let younger family members understand the personal implications of having great wealth.
The Spectrem study addresses the issue of education as well. Sixty-three percent of $25 million plus investors believe it is important to have children or grandchildren meet with their advisor, and 66 percent believe it is important for their advisor to provide educational information for their offspring.
Advisors should keep in mind that almost every investor has a family, and those offspring are potentially future clients. When those children become of age, they might be looking for an advisor to help them with their inherited wealth, and they are likely to look to the advisor who works with their parent or grandparent.
(Almost 70 percent of the wealthiest Americans encourage their children and grandchildren to use the same financial service firm they have used).
Many wealthy investors worry often about their offspring in relation to their accumulated wealth. Eighty-three percent of the wealthiest Americans worry that their wealth will be detrimental to the work ethic, educational or career plans of their children and grandchildren.
There are pressures that come with great wealth beyond financial matters such as taxes, trust logistics and security. Most wealthy people have friends who could use a financial kick-start, and 53 percent of the $25 million-plus investors have friends or family members that have asked them for money. Just under one half (49 percent) say their significant wealth has brought them unwelcome attention, which can come from anyone looking for a charitable contribution or an investment stake.
None of these concerns take away from the positive impact great wealth has on investors. Fifty-five percent of investors with a net worth over $25 million attribute a large part of their personal happiness to the wealth they have accumulated. That is especially true with that younger segment of investors under the age of 51, with 70 percent saying they are happy because they are wealthy.
Top Takeaways for Advisors
Is being wealthy stressful? There are a significant number of matters that wealthy individuals must address, and some of the decisions these investors must make can produce stress. Can advisors reduce that stress? In most cases the answer is yes, and advisors would be wise to ask their investors if their financial position is producing undue pressures. Certainly, there are family issues that do not fall in the purview of financial advisors, but any pressure that exists as a result of an investor’s financial status can be addressed.
Financial firms should be prepared to educate the offspring of investors, and should invite investors to set up educational programs or meetings with children. Investors have different views as to the proper age to inform children of their potential future position related to their finances, but advisors should be the go-to forum for providing educational materials for those offspring.
©2017 Spectrem Group