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Lewis Schiff
Lewis Schiff
The Added Challenges When You Advise Affluent Clients
Advisors to wealthy families speak out about their careers and clients.

January 20, 2011
by Lewis Schiff

Advisors to very wealthy clients like the complexity of their work, but they find technical knowledge of their discipline isn't enough to do the job right. In a previous column, we reported on the findings of a new study that looked at the interaction of wealth counselors and their ultra-high-net-worth (HNW) clients. Although this group represented a range of backgrounds, their practice models reflected the overall concept of comprehensive team planning, which at this asset level often includes wealth psychology professionals as team members. They confirmed that the planning issues, service demands and family dynamics of affluent families are just too multi-dimensional to be left to a single skilled financial professional — outside experts in charitable giving, multiple-jurisdiction tax planning and even private banking, for example, may need to join the team to fully serve this clientele.

More Than Technical Skills

Regardless of the particular technical discipline, all advisors — not just the captain — require advanced listening skills, a subtle understanding of client and money psychology and some familiarity with the full range of financial planning issues. The combination of these abilities permit advisors to build up relationships based on trust. Interestingly, trusting relationships guide wealth counselors more than their technical knowledge or experience in a particular discipline, according to the findings in "From Wealth Counselors to Wise Counselors: A Dialogue with Leading Advisors to Wealthy Families" from Wise Counsel Research, Inc. As one advisor expressed it, her deep technical background in economics and professional experience in running family offices weren’t enough — they only partially prepared her for clients who needed help with both financial challenges and their feelings about being wealthy.

For these kinds of clients, going beyond one’s discipline can be seen in the area of retirement planning, for example. Many have expanded their practices to include client support well beyond investment management of retirement assets to include life planning, guidance on volunteer opportunities, post-retirement career strategy, relocation planning and healthcare planning.

Wisdom As a Service

Not surprisingly, the advisors in the study spoke in terms of a client-centered view of their activities, which goes beyond the financial details to understanding goals, values and history. As one wealth counselor expressed it, these savvy clients can recognize when solutions are truly best for the family. "I think clients can tell when wise counsel is involved because the outcomes are more in their self-interest [than the advisors'].

Many of the respondents see providing wise counsel as discovering missing elements in planning which clients might not have recognized and helping them to fulfill them. "How do I define wise counsel?" asked one of the advisors. "Meeting the true needs of a person, gaining clarification so that these people will make wise choices in how to connect and implement their capacities and their aspirations. This [approach] enables the client to make wise choices." These advisors follow a defined process that gives them a fruitful path for building relationships and creating comprehensive plans, but the wisdom works when clients gain new perceptions of their situations and greater understandings of their wealth.

Advisors achieve the true wisdom they need from sources beyond schooling and even beyond the core knowledge of their own discipline. They develop a wider network of experts that goes farther than just their slice of estate planning or investment management, for example.

Fee Challenges

The complex needs of demanding affluent families require sustained intellectual and emotional effort, as well as time on the advisor’s schedule and access to his or her network of experts. Getting paid for all the effort spent on client tasks is still a challenge.

A small, but growing trend among independent advisors looks beyond the traditional annual percentage of assets under management (AUM) to a new structure of fees based on total client net worth, which addresses payment for the broader range of services they offer. It compensates for time spent on such client concerns where no AUM fee would be involved, such as mortgage refinancing, providing advice on assets within a company retirement plan or working with an estate attorney on a new will. There is also a question of mind set — if an advisor is only paid by a fee on AUM, investments and gathering more assets naturally become the major focus of the practice.

Changes Brought by the Financial Crisis

Another insight revealed in the study, which collected observations from advisors soon after some of worst months of the financial turmoil, is the dramatic change in client focus for those whose levels of wealth shrank rapidly. For clients whose spending levels were consistent with their previous levels of wealth, the concept of asset depletion may have never been discussed before. The adjustment could be harsh as they learned a new behavior — a lower responsible rate of consumption.

According to findings from the Spectrem Group in Chicago advisors have had to adjust to a new fear of risk even for those wealthy families who don’t need to rethink their budgets. In 2008, only five percent of U.S. households with a net worth of $5 million to $25 million (not including primary residence) described themselves as conservative investors. By 2009, 27 percent saw themselves in that group.

The Spectrem study also highlights the challenges of gathering AUM from such clients. As advisors have known anecdotally and the findings document, the majority of wealthy clients remain actively involved in managing their assets, letting professionals handle just 18 percent without client input. A significant 47 percent of their assets they handle themselves — without any professional input.

Emotional Challenges

The emotional challenges faced by advisors during this time have taken their toll. Over the last couple of years, advisors needed to address their own emotional states, notes Keith Whitaker, Ph.D., president and founder of Wise Counsel Research, who has considerable direct experience in working with wealthy families on their financial and personal issues. In his additional role of consulting with advisors, he has observed a growing need for them to gain balance in their lives with all of the pressures they encounter. He suggests that advisors pursue ongoing intellectual and emotional development as well as positive social networks made up of people who motivate them and allow them to remain determined even when facing adversity.

Whitaker sees wealth advisors as needing to understand themselves and their inner drivers, as well as their clients’. "I think it's really critical to ask yourself the question: why do you want to work with wealthy people?" he notes. "Is it because you think you can influence them towards the things that you believe in? Is it because you really enjoy the role of service? … I think it's critical [to know the answer] in doing this kind of job well."

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Lewis Schiff is a senior managing principal of Advanced Planning Group, a family office network for advisors.

The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and closely held entities. All members of the AICPA are eligible to join the PFP section. The PFP Practice Center provides information on various business models available to CPA financial planners. The Personal Financial Specialist (PFS) credential is exclusively available to CPAs who want to demonstrate their expertise in this subject matter and is characterized by a comprehensive approach planning that includes all disciplines and their tax implications. Visit www.aicpa.org/PFP to learn more.