The things wealth managers must know to keep their wealthy clients feeling secure.
Note: This is the first in a three-part series on the growing area of wealth protection services for affluent clients.
Our extensive work with wealth managers has allowed
us to see a variety of practice models in action and monitor the
evolution of the service offering over time. The heart of wealth
management is the advisor's ability to deliver a broad range of
services and products packaged in unique combinations as financial
solutions for their affluent clients.
Most practitioners have oriented their business
around a core set of products that reflect the needs of their client
base, and then supplement those core products with ancillary products
and experts as needed. Generally speaking, the wealth management
platforms we have observed have included the following types of
services: brokerage, lending, asset management, philanthropic planning,
wealth enhancement, tax planning, asset protection, estate planning and
a range of lifestyle services. These lifestyle services often include
financial education, collection acquisition and development, physical
security, residence and vessel management, and travel and social
coordination.
The greater a client's wealth, the more concerned
they are about managing their significant tax burden. As a
result, it is likely that a wealth manager will introduce advanced
planning services into the relationship. Our research has also shown
that as a client's personal wealth increases, so does their concern
that they will become a target of unwanted attention from creditors,
criminals, litigants, competitors and members of the media.
Furthermore, they fear for their physical safety and the safety of
their family members and close associates.
Helping a client in these two areas requires a
sensitivity to privacy and protection. For some time now, we have seen
wealth managers that work with exceptionally wealthy clients, those
with a net worth of at least US$25 million, focused on the integrated
delivery of asset protection and security services across a client's
extended business and personal network. The demand for these types of
services is growing among the wealthy community, and we refer to the
combination of asset protection and security services as wealth
protection.
What Is Wealth Protection?
Again, wealth protection isn't a new service but
rather a more systematic coupling of two related and complementary
services that is now becoming mainstreamed. Philosophically speaking,
the two disciplines work together to ensure that everything valuable to
a client-whether it's a person, a business entity or an heirloom-is
protected. The following section provides an overview of each
discipline as well as a brief comparison of the two service areas (see
Figure 1).
Broadly speaking, asset protection planning is the
use of legal strategies and structures, which may require the use of
financial products, to create obstacles and barriers for a creditor
seeking to access an individual's financial assets. The
overarching goal is to motivate any adversary-such as an ex-spouse, a
former business partner, a child or a disgruntled investor-to
relinquish their efforts entirely or to settle on terms more favorable
to the client. Some examples of asset protection strategies include:
Traditional and extraordinary liability insurance
Onshore and offshore self-settled spendthrift trusts
Corporate structures
Asset transformation strategies
Complex installment sales
Replication strategies
Security services entail all measures taken to
protect the client and the people and property most important to the
client from criminals. This includes avoidance of and protection from
violent crimes such as kidnapping and vandalism, invasive crimes such
as theft and infiltration, and virtual crimes such as identity theft.
Some examples of specific security services include:
Close protection personnel
Transporter services
Identity assessments and checks
Countersurveillance and surveillance services
Safe havens
Property and personnel "tagging"
Serenity In Advance Preparation
With both service areas, it is most effective to
plan in advance and take any necessary precautions before an incident
occurs. However, many individuals only get serious about wealth
protection after they have experienced a loss, been the victim of a
crime or been entangled in a lawsuit. While there are certain
circumstances when particular asset protection strategies can
legitimately be employed after a creditor surfaces, these situations
are rare. And to avoid complications associated with fraudulent
conveyance, all planning must be in place prior to an occurrence.
On the physical security front, advance preparation
can help avert potential problems. Without that effort in place, a
wealthy client will be faced with finding and retaining security
professionals to assist with crisis management as the incident is
unfolding. Security services can, however, be put in place at any time,
and seasoned security consultants will know how and when to implement
them as effectively and unobtrusively as possible.
There is, of course, a critical psychological
component to wealth protection that has been uncovered in our work with
wealth managers, and that is the wealthy client's desire for the peace
of mind that comes with knowing they have done everything within reason
to actively protect their most important assets.
The Role Of The Wealth Manager
Wealth managers are well positioned to facilitate
the wealth protection process due to their holistic perspective on
clients, which includes both financial and lifestyle needs. An
effective wealth manager is familiar with their clients' biggest
concerns and well versed in the details of each financial situation.
This enables them to identify assets that may be at risk and the
circumstances that can lead to significant problems, such as improperly
or underinsured artwork. Furthermore, a wealth manager's generalist
capabilities contribute some additional benefits-the ability to oversee
the process without the myopic focus often exhibited by specialists,
and the ability to maintain an equanimity that ensures the final
solution is a combination of the strategies and services that are most
appropriate for the client.
While many professional advisors are familiar with
the concepts and strategies behind asset protection and can begin the
planning process, an array of other professionals likely will be
required in order to implement the strategies; the same is true of
security services. Wealth managers will find themselves operating as a
"general contractor," bringing in outside professionals and niche
experts on an as needed basis.
For instance, attorneys will be needed to draft
contracts and agreements and set up business entities, and products
from insurance agents, derivatives specialists and credit providers are
often needed to fund core asset protection strategies. The umbrella of
security services includes a wide variety of things, and more often
than not a wealth manager will work with a security consultant to
identify the right service set and secure the associated specialists.
Once specialists have been retained, a wealth
manager often faces the most frustrating and thankless part of their
role-coordinating the other professionals on behalf of the client's
agenda and ensuring that they stay focused and work collaboratively
with one another.
While wealth management is comprised of two distinct
disciplines, asset protection and security services work together to
address different aspects of the same issue-the safety and security of
the affluent. A wealth manager that can empathize with their clients'
need for privacy, protection and security, and then provide the related
services and support that will demonstrate an understanding of
leading-edge wealth management techniques, strengthen their client
relationships and reinforce their role as an essential partner.
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.