Knowing what to do is one thing; knowing how to do it-and to keep it done-is where the advisor shines.
Note: This is the second in a three-part series on the growing area of affluent wealth protection services.
In last month's article we discussed the growing
demand for integrated asset protection planning and personal security
services as part of an overall wealth management platform, and the role
a wealth manager plays in coordinating and delivering wealth
protection. In this month's article, we review the six-step wealth
protection process that enables wealth managers and other specialists
to assess the human and capital assets at risk and take the appropriate
measures to secure them against harm on behalf of an affluent client.
As with many complex services, the use of a process
can facilitate a smoother client experience and satisfactory results.
The wealth protection process by itself is not unique, but the
resulting solutions and implementation can create a significant amount
of goodwill between a high-net-worth individual and their wealth
manager. And many shrewd advisors can leverage their proficiency with
the process to expand the range of services they offer and to attract
other wealthy clients with similar objectives.
Operationally, the wealth protection process is
comprised of the following six phases, but should not be treated as an
incontrovertible process. Most successful wealth managers have managed
to put a personal spin on everything they do-which is often one way
they distinguish themselves from their competitors and connect with
their clients-and the same should be true with wealth protection. If
utilized as a broad conceptual model, it can guide the wealth manager
and the client as protection objectives are established and met. The
six phases are:
Phase 1: The At Risk Assessment
Phase 2: Evaluate Alternative Solutions
Phase 3: Select Solutions
Phase 4: The Action Plan
Phase 5: Implementation
Phase 6: Follow Through
As with many wealth management offerings, wealth
protection will invariably require the use of outside experts
throughout the process. The specialists will provide an extraordinarily
deep level of technical knowledge in their area of expertise, which
leaves the wealth manager to act as a generalist and to provide
coordination and oversight of the overall effort. In this central role,
the wealth manager should have a broad understanding of the service
area and be conversant in the most common strategies and pitfalls.
Phase 1: The At Risk Assessment
During this phase the basic protection concerns and
needs of affluent clients are identified. Our research indicates that
one of the most important tools is a comprehensive profiling technique
that will assist the wealth manager in acquiring the financial and
lifestyle details of the client and those within their inner circle. In
the past, we have introduced the Whole Client Model (more information
can be found in the Financial Advisor March 2005 column, "Know Thy
Clients") as a proven method of gathering the basic data a wealth
manager needs to understand clients and begin to formulate strategic
recommendations. This methodology is also central to the risk
assessment process; its seven sections will guide an advisor through
discussions that will uncover important information and provide
sufficient details that will provide the wealth manager with the
bird's-eye perspective necessary to oversee wealth protection planning
and implementation.
Success in each of the subsequent phases of the
wealth protection process is reliant on the risk assessment being as
complete, thorough and accurate as possible. It may take several
meetings before all the client's wealth protection issues are
identified, even if there is a pre-existing relationship between the
advisor and the client. The less mature the relationship, the more time
it will take to complete this phase.
Phase 2: Evaluate
Alternative Solutions
Both asset protection and physical security will
have an array of solutions and these must be considered and screened in
the context of the individual or household they have been proposed for.
Many affluent families have specific requirements or boundaries that
place constraints on a wealth protection plan and its implementation.
An important method for evaluating wealth protection solutions is the
following conceptual algorithm-the net value of a security solution:
Net Value of a Security Solution =
Intensity x Duration
Lifestyle Issues x Financial Issues
Every wealth protection solution has four variables
that can be modified within set parameters. One is intensity: How
concentrated should the security solution be? Another variable is
duration: How long will the solution be active? These two variables are
the numerators of our conceptual algorithm. The denominators are
lifestyle considerations-the extent to which a wealth protection
solution is an impediment to your client's lifestyle-and financial
considerations, or the costs of using a particular wealth protection
solution.
This evaluation technique will help the wealth
manager, the specialists and the client narrow the list of
possibilities to a workable number. For the most part, every solution
will be specific to the asset in question, but there may be instances
in which several solutions will need to work in concert and this phase
provides an opportunity to assess whether that is either viable or
effective.
Phase 3: Select Solutions
Once the most appropriate and effective solutions
have been identified, it is time for the wealth manager and the client
to select those that best fit their needs and overall wealth protection
goals. Using hypothetical scenarios can often help a client identify
those issues that are of greatest personal concern and those areas with
the greatest risk exposure.
Some of the questions wealth managers can use during this phase include:
What if someone kidnapped your daughter?
What if you were being followed everywhere by an obsessive fan?
What if a teenager claimed to be your illegal offspring?
What if someone is listening in on all your phone calls and is reading all your e-mails?
What if a stranger knows how much money you have and where it all is?
What if someone steals your identity and empties all your accounts?
What if someone filed a frivolous but very real lawsuit against you for $50 million?
What if you found your private jet trashed the next time you boarded it?
While these types of scenarios are unlikely, they
are still possible. The following algorithm can be useful when
evaluating a potential incident and its solution, as it can help
affluent clients perceive each within the confines of their personal
circumstances.
Need for a Wealth Protection Solution =
Probability of Incident x Severity of Incident
Once complete, the wealth manager and the client should work together to rank the incidents by the degree of negative impact. And finally, as a generalist, the wealth manager should maintain focus on the client's overall goals and not be persuaded by the zeal or enthusiasm of a specialist to adopt a strategy that is not the right fit.
Phase 4: The Action Plan
This phase provides an opportunity for the wealth
manager to confirm the clients' goals and match them to the wealth
protection solutions that have been selected. Once the advisor,
specialists and client agree, each solution is customized for the
client and a detailed proposal and blueprint for implementation is
drafted. The overriding goal of the action plan is to give the client a
clear sense of the steps required to secure their financial and
personal property.
Bear in mind that life is fluid and it is not
uncommon for significant and materials changes to occur between each
phase of the wealth protection process. Any number of things, such as
burglaries, marital separations, overseas travel, car accidents and
missing medical records can prompt unexpected modifications to an
action plan.