Many advisors don't understand what their wealthy clients want-or need.
Being successful in cultivating as well as working with the wealthy often will require financial advisors to be sensitive to a number of planning concerns of their affluent clients and prospects. While this does not mean the financial advisor has to be expert at the various forms of planning, he or she must be adept at recognizing the need and be able to source the proper experts, as well as being able to motivate the client to take action and often facilitate the process.
What proves to be the biggest obstacle is the lack of knowledge most
financial advisors have about their affluent clients. Just consider the
weaknesses of many financial advisors when it comes to really
understanding their better clients. We empirically addressed these
issues when we conducted a study of 1,417 affluent investors
(investable assets of $500,000 to $5 million) and 512 financial
advisors who derive 75% or more of their business from these types of
affluent clients. For our purposes, let's consider three planning
Asset protection planning.
No matter what happens to the federal estate tax, the affluent
generally want to determine who will benefit from their efforts-how
their assets will be divided. Thus, there is a strong need for estate
planning. This becomes more important when we recognize that 79.2% of
the affluent want to make sure their heirs are properly taken care of
Most of the affluent investors (69.8%) had estate plans (Exhibit 2). At the same time, 82.2% of the financial advisors stated that their clients with $500,000 to $5 million in liquid assets had estate plans. We already can see the disconnect between the world of the affluent investor and the perceptions of financial advisors.
What is even more telling is that among the 854 affluent investors with
estate plans, only 11.2% of them have up-to-date estate plans.
Consequently, most affluent investors should seriously consider
revising their estate plans.
What we have found is that many financial advisors make the erroneous presumption that because a client is wealthy, that client has addressed his or her estate planning needs. For all sorts of reasons ranging from a preference for considerable control to fear of death, estate planning is regularly not being done-even though it should.
For financial advisors, there are tremendous business opportunities that tend to become apparent when wealthy clients go through the estate planning process. Life insurance-be it updating what the client presently has or providing more to meet changing circumstances-is regularly a product of estate planning. Increased assets under management are also the norm, especially as assets are placed in trust structures.
Another form of planning where we see this same pattern of affluent client need and financial advisor disregard, but only more intensely, is asset protection planning.
Asset Protection Planning
Of the 1,417 affluent investors we surveyed, 47.3% are very concerned about being sued (Exhibit 3). Clearly, these wealthy individuals would make excellent clients for asset protection planning. However, only 12.9% of the wealthy have formal asset protection plans (Exhibit 4).
Like estate plans, asset protection plans need to be continually updated. Of the 183 affluent investors with asset protection plans, all of them were three years old or older. In effect, all of them should be updated.
At the same time, the financial advisors we surveyed misread the concern over asset protection planning for their affluent clients. Only 20.9% of financial advisors stated that the majority of their wealthy clients should be looking at asset protection planning. Another 27.5% considered it unnecessary for their affluent clients. And, more off the mark, was that 51.6% stated that the majority of their affluent clients were already taken care of when it came to asset protection planning.
As with estate planning, asset protection planning will likely lead to the need for financial advisors to provide a variety of financial products, from life insurance to derivative transactions to investment management. Once again, financial advisors are off the mark when it comes to the needs and wants of their wealthy clients. Their perceptual inaccuracies not only mitigate their own business success, but they are doing a disservice to their affluent clients.
Another area where there is a "disconnect" between the perceptions of financial advisors and the needs and wants of the affluent is charitable planning. With 99.2% of the affluent we surveyed engaged in "checkbook philanthropy," only 21.1% have made planned gifts (Exhibit 5).
At the same time, we find a precipitous gap between the types of planned gifts the affluent are interested in learning about and what financial advisors think the affluent are interested in learning about (Exhibit 6). Case in point: among all the types of charitable gifts, 67.7% of the affluent are interested in learning about private foundations. At the same time, only 14.5% of the financial advisors believe their affluent clients are interested in learning about private foundations. At the other end of the spectrum, 45.5% of financial advisors believe their wealthy clients want to learn about will bequests. However, the data shows that none of the affluent are interested in learning about will bequests.
These three types of planning, which are very often interrelated, are clearly appropriate and in demand by the affluent. Meanwhile, so many financial advisors make the presumption that these planning services are unnecessary for a variety of reasons, ranging from "the client is all taken care of" to "it's not my job."
Beyond the basics, it's unlikely that the greater majority of financial advisors are proficient with respect to estate, asset protection or charitable planning. In our experience, this lack of expertise proves to be a significant stumbling block for many financial advisors. This turns out to be a self-imposed limitation.
The affluent do not expect their financial advisors to be adept at all the various planning services. Concurrently, few-very, very few-financial advisors are planning polymaths. The key is for a financial advisor to recognize the need for various planning expertise and be positioned to bring in the appropriate experts. Whether these experts are on staff or professionals with whom the financial advisor has strategic alliances, all that matters is that they can be accessed appropriately.
It is a significant mistake for most financial advisors to try to
become proficient at the various forms of planning. Learning how an
intentionally defective trust works, or the mechanics of a charitable
remainder trust, or the operation of an offshore self-settled trust, is
not nearly as important as learning when to bring in the right
By being able to deal with the planning concerns of the affluent by brining in the proper experts, the financial advisor will end up growing his or her business. The expert planners will end up identifying opportunities for the financial advisor to provide products. And, most importantly, the affluent client will be better served.
Hannah Shaw Grove is the author of five books on private wealth and
advisory practice management. Russ Alan Prince is president of the
consulting firm Prince & Associates.