If we were to listen to the plethora of financial commentators out there in the market, we could be forgiven for thinking that the only financial concern that successful people have is making sure they have made wise investment decisions and accumulated sufficient wealth to fund their retirement.
The affluent are fully aware that their wealth carries with it some degree of complexity. As such they need and want much more than just investment advice. From years of industry research and our significant experience in understanding the needs of successful individuals and family groups, it is clear that acceptable investment returns are only part of the equation – there is a broader range of concerns and challenges that keep this cohort up at night.
These concerns can be broken down into five main categories.
1. Wealth Preservation
The facts show that whilst affluent clients are certainly interested in creating wealth, the great majority are even more concerned about preserving the wealth they have already obtained (see chart below). This was true even before all of the financial uncertainty of the past few years –and it’s become an even bigger issue since then.
From the point of view of affluent individuals, wealth preservation is not about just not losing money. It’s about having enough money to fund their lifestyles—to be able to do what they want to do, whether that’s simply to retire securely, pay for their children’s education or to take care of multiple lifestyle assets like homes, cars and boats.
Clearly, having wealth doesn’t erase or minimize the fear of losing what you have worked so hard to build up over the years. For this reason, Calibre Private Wealth Advisers’ first commandment is to help clients to preserve their wealth.
2. Wealth Enhancement
The goal of wealth enhancement is to grow wealth whilst minimizing the tax impact on clients’ investment returns and ensuring they have the cash flow they need.
Income taxes may or may not be, as Einstein said, “the hardest thing to understand in the world,” but they are certainly among the least popular. Mitigating income taxes is a concern of more than 90 percent of those with a net worth between $1 million and $3 million and of more than threequarters of those with a net worth between $3 million and $10 million. For those in the higher net worth range ($3 million and up), mitigating estate and capital gains taxes are also major concerns.
3. Taking care of family
This is about finding and facilitating the most tax-efficient way to pass assets to a spouse and succeeding generations in ways that meet the client’s wishes.
Approximately 80 percent of affluent investors said that a major concern was ensuring that their heirs, parents, children and grandchildren are taken care of with minimal difficulty and cost and in accordance with their wishes. And yet, the majority of these investors (89 percent) have estate plans that are more than three years old.
Many people ignore this crucial concern for too long because addressing it requires them to ask potentially uncomfortable questions about mortality and family issues. But failing to ensure that wealth goes exactly where clients want it to go can have big ramifications on everything from their ability to help family members achieve their goals (such as education) to the long-term succession and sustainability of a family-owned business. What’s more, it promotes continued uncertainty and fear. The upshot: Assisting clients with estate transfer and planning is a key part of an advice offering that will address their major issues.
4. Wealth Protection
This includes all concerns about protecting the client’s wealth against catastrophic loss, potential creditors, litigants, children’s spouses and potential ex-spouses, and identity thieves.
Affluent investors also want to protect their assets from being unjustly taken by potential creditors, litigants, ex-spouses and children’s spouses. Nearly half of the affluent investors surveyed are worried about being sued. This means that your wealth management planning must also address controlling risks through business processes, employment agreements and buy-sells, as well as restructuring various assets and considering legal forms of ownership—trusts, limited-liability entities and so on—that put wealth beyond the reach of creditors and other parties.
5. Charitable giving
This encompasses all issues related to fulfilling the client’s charitable goals in the most impactful way possible. It can often support efforts in other areas of concern.
Increasingly, affluent investors are looking beyond their own families to the world at large. For approximately 30 percent of these investors, making meaningful gifts to charity is a key issue. Charitable gifting comes with its own unique challenges, of course—from selecting the appropriate means of giving to selecting causes and specific organizations that will have the biggest impact to balancing the desire to leave a legacy with the need to provide for the near future.
Addressing these concerns
Given these major concerns, true wealth management needs to go beyond traditional investment ideas and solutions to encompass all types of financial needs throughout all phases of client’s financial lives.
To help organise Calibre Private Wealth Adviser’s thinking and approach to Wealth Management, we use a single, all encompassing formula:
Wealth Management = Investment Consulting + Advanced Planning + Relationship Management
Investment consulting is a core offering and the foundation upon which we often begin to build the client relationship.
Advanced planning addresses the range of financial needs beyond investment consulting. It consists of wealth preservation, wealth enhancement, wealth transfer, wealth protection and charitable giving.
Finally Relationship management involves three key tasks:
Firstly, fully understanding our client’s critical needs and meeting those needs over time through a consultative process;
Secondly, assembling and managing a professional network of financial experts (in areas such as tax, legal, finance, insurance, portfolio management and financial planning) to provide the insight and experience needed to address the advanced planning needs of our clients and thirdly, working effectively with our clients’ other professional advisers, such as their lawyers and accountants.