Advisors cultivating the HNW segment find themselves surrounded by people who seem to have more money. It is easy to feel poor. It’s also tempting to try and “fit in” and overspend in multiple luxury categories. When it comes to feeling rich or successful, “How much is enough” from the advisor’s point of view? How do you keep from feeling like the poor relation at a family gathering?
News Flash – Advisors Are Successful
How would you define “being rich?” People talk about “one percenters” as the top of the pile. A Forbes article indicates the top 1% can be measured by income or assets. The dividing line for getting into the top 1% by assets nationwide is about $11.1 million of household assets. Since many advisors own their own firms or have been in practice for decades, they have accumulated significant net worth, especially when retirement assets are included in the total.
The September 17th issue of The Economist included an article about the book, Bully Market by Jamie Fiore Higgens, who worked at Goldman Sachs. For 17 years she kept her “Spreadsheet of Freedom” to track when she had accumulated enough assets to walk away. Advisors might redefine retirement as financial independence. It’s the same concept as her Spreadsheet of Freedom.
Being rich could be defined as reaching the point when work becomes a choice, not a requirement. If $ 11.1 million gets you into the 1% bracket in terms of assets and you have enough money to stop working if you choose that’s a good threshold for feeling rich.
The Pitfalls Of Comparison
The lesson learned from the points above is “Compete with yourself, not against others.” The Spreadsheet of Freedom measured home much she needed for work to become a choice, not a requirement. It is easy to fall into the trap of comparing your situation to others around you and trying to compete in every category. That is a game you cannot win. Under those rules, you will never feel rich.
1. Enough is never enough. A successful financial planner who worked with senior corporate executives explained they often had “a number” they strove to hit, the amount of assets that would allow them to walk away if they chose. She explained the problem was the “ratcheting effect.” When they eventually hit that number, they would set a new, higher number and work towards it. They never achieved their goal because the goalposts were always moved. They moved the goalposts themselves! Keep the target stable, although you would adjust for inflation. You can keep on working, but you do not need a new goal.
2. Pick one specialist subject. The Brits have a TV quiz show called Mastermind. One feature of the program is contestants are questioned on their specialist subject. Put another way, although they are smart, they have a focus or concentration. The advisor who has been accepted into HNW circles often knows one person who collects Impressionist art. Another buys Bordeaux wine, but only the First Growths. A husband only buys their spouse “high jewelry.” A term defining the best of the best. Someone has a house in the Hamptons. The advisor determines in order to compete, they must collect art, buy Bordeaux wine futures, splash out on jewelry and buy a beach house. They are under water in debt. Each of these HNW people has a specialist subject. You should choose only one.
3. HNW people are often savvy businesspeople. These wealthy clients and friends often think of their hobbies as another way to make money. The fine wine guy and the art guy buy and sell at auction. The woman with the house in the Hamptons rents it out for most of the summer season, generating a stream of income. Your special interest should not simply be on the expense side of the equation. Can you make money from it?
4. Wealthy people are cheap. All your wealthy friends belong to country clubs. They entertain each other often. When you take them out, you bring them to nice restaurants because you either do not belong to a club or you feel you need to impress them. The wealthy often entertain each other at their clubs because they have steep monthly minimum spending levels they must achieve. Put another way, “use it or lose it.”
5. The wealthy love being cultivated. They belong to an exclusive “club,” the set of people the community determined have assets and therefore deserve respect. They are constantly wined and dined by nonprofits and cultural organizations seeking donations. Some of the wealthy are experts at stretching out the cultivation process because they know once they write the check, the next wealthy name on the list gets cultivated. You are probably doing the same thing, spending money on them seeking to “buy access.” How is that working out for you?
6. Enough is Never Enough (revisited). There are certain luxury categories that define the best of the best. In the wine world, Chateau Lafite Rothschild and Domaine de la Romanee Conti fit into this category. Rolls Royce has cachet in the automotive world. There are few categories working that way. If you own a yacht, there is always a bigger one entering the marina someday. If you have an 8,000 square foot house, someone will build a 10,000 square foot house nearby. Even if you have a trophy, some people are never satisfied until they have a bigger one, they can brag about. Some will go into debt to make it happen. In the Gilded Age, wealthy people made their money first, then spent it. Today, many people spend first, service the debt and hope for the big score. You need to be in the first category.
It is easy for advisors to feel poor if they allow others to set the rules, officially or unofficially. You should be able to feel rich if you do four things: Get into the top 1% or 2% asset category, eliminate debt, achieve financial independence and compete in only one specialist category. Being charitable helps, because you will be cultivated.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.