Capturing Additional Assets With These Strategies
The takeaway here is that investment management expertise per se will often take a backseat to the tax-mitigation or wealth protection benefits of the advanced strategies. For example, charitable structures—trusts and foundations—are created because the wealthy want to provide a meaningful social benefit. The investment management component, though essential to many charitable structures, is usually not especially emphasized when the decision to use one of these structures is made.
Similarly, affluent clients establish captive insurance companies in order to better manage critical business risks. There could be significant tax benefits, but again these are not the reason for establishing one. Nevertheless, once a captive insurance company is put in place, the premium dollars in the reserve and in excess capital might very well benefit from high-quality investment management capabilities.
This is not to say that the investment management capabilities and track record of financial advisors are not important in these structures. But what tends to happen is that advisors who implement or help facilitate these strategies also usually manage the investable assets in them (Figure 3).
Still, less than half of financial advisors are discussing these strategies with affluent investors (Figure 4). So this is an opportunity for many advisors.
The competition for investable assets is fierce. Advisors will continue to primarily compete by focusing on their investment expertise. While this head-to-head approach is going to continue to dominate the way business is pursued, there is a complementary approach that can help the advisor see significant new assets under management.
There are a variety of advanced planning strategies attractive to select wealthy clients. The explicit benefits of these strategies—such as the considerable income tax deductions, the enhanced corporate risk management and the support for worthwhile causes—are why the wealthy will embrace them. Investment management services are just part of the package, but the advisors who introduce the strategies to clients tend to be the ones managing the money.
Russ Alan Prince is president of R.A. Prince & Associates.
Brett Van Bortel is director of consulting services for Invesco Consulting.