Ultra-high net worth (UHNW) clients are valuable to your advisory firm. To serve them well, it’s important to understand them thoroughly. Their needs differ from those of other clients. Taxes, estate planning, maintaining their lifestyle in retirement all come with unique challenges.
But you also need to understand the challenges advisors face in educating and guiding this group. Those challenges may be significant, based on Financial Planning’s inaugural Financial Wellness Survey. Success at making money doesn’t equal success at managing money—one in four of the 300 advisors surveyed say that half of their high-net-worth clients ($10 million+) are living paycheck to paycheck.
Many wealthy people assume that they can absorb the cost of expensive events, so health insurance is an unnecessary expense. A good financial advisor needs to explain that the purpose of health insurance for them is more about protecting assets than protecting health. Healthcare bills can reach hundreds of thousands of dollars, even millions, in the most serious cases. Even if someone can pay these bills out of pocket, their investment portfolio may never recover from this loss of earning power. In other words, they won’t only lose the money they pay out for medical expenses but all the earnings they could make from this money over time.
The purpose of life insurance may differ for UHNW clients, who have alternative ways of providing for their families after they pass. However, the proceeds of a life insurance policy may be useful to heirs in helping preserve other assets. Clients with high-value estates should consult a tax advisor about all potential estate and income tax implications and strategies, including the use of life insurance.
According to Financial Planning, ultra-high net worth clients are more than twice as likely to put their money in direct investments and several times more likely to invest in ETFs, than those with less than $250,000. However, there is still significant room for improvement in how they invest and where they keep funds on a daily, weekly, monthly basis. One of the best things an advisor can do for any client is to ensure they have access to funds as needed without sacrificing potential earning power.
When you’re guiding and educating your UHNW clients, it’s important to understand that very different issues confront a high-earning CEO and someone who earns most of his or her money through the markets. Before retirement and after, you need to make sure they address the realities of their own situation. While executives need to pay careful attention to preserving their lifestyle after retirement, investors need to focus on hedging against losses in the same markets that produced their gains.
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