"They're trying to stretch to own private aviation, because they've gotten a taste of it through a charter or through friends. And with the airport security lines the way they are, it seems to be the most compelling capital expense for a lot of these folks," Phillips says. "But frankly, at those asset levels, it's pretty tough."
It's not so much the initial outlay, which can be $2 million to $3 million. It's the annual maintenance, the upkeep and the hangar. And it's what they would have earned on that money if they hadn't used it to purchase a jet. It seems like once someone buys an airplane, the money just keeps going out, one advisor says.
Yachts are even more costly-about five to 10 times more costly than a jet, Phillips says. They start at about $8 million to $10 million, and the operating costs are astronomical, Phillips says. The lower echelon simply can't afford them, he says.
Phillips says he'll walk the clients through an asset/liability model, where he takes their asset pool, determines what it is they want to fund with that money, and then assess whether they can afford it. For some, the answer is a resounding no-particularly for those in their mid-60s or older, who want to transfer wealth to the next generation. They realize that if they buy that jet or that boat, it could impact the size of that transfer, Phillips says.
Some don't come to that realization on their own. And then the advisor is in the sticky position of trying to tell a client they can't have their toys.
"Try talking a family into having a cheaper wedding for their only daughter or not splurging on a sweet 16," says Russell Bailyn, a wealth manager with Premier Financial Advisors in Manhattan. "Most parents don't want to hear it. And even if you give a rational explanation, they aren't listening."
The only thing an advisor can really do is place the clients' other needs back on their radar screen, front and center, such as rising college costs and the need for them to save money for education, or looming retirement concerns, given that people now live longer and thus live well beyond the point at which they stop working. Even wealthy clients don't want to feel like they could run short on funds during their later years, Bailyn says.
Oftentimes, it's the millionaires-and not the billionaires-who are spending that kind of money on these life events. They'll have maybe $8 million in assets, and they'll spend $1 million on a wedding.
"That's crazy to me. It's over the top," says Fenton of Atlantic Financial. "That's a situation where it might have been nicer for the couple to have a nice new home. And if you're a billionaire, you can do both."
Fenton says one of the silliest things he ever saw was a man who won about $500,000 in a lottery, and he spent $200,000 of it on a new car for his 18-year-old daughter.