The population of ultra-affluent investors (those with $10 million or more in investable assets) is increasing at a greater rate than other wealth levels. This is creating a huge pool of investable assets held by those who are likely to rely on professional money managers. More advisors, meanwhile, are looking to find these investors.

But even though advisors are looking at a huge opportunity to increase their assets under management by cultivating the ultra-affluent, relatively few are getting much traction with this segment.

One problem is that they must know the difference between promoting a product and solving a problem. Which means they must know the difference between investment management and wealth management.

Those advisors focusing on investments will boast far fewer opportunities than wealth managers to connect with these investors. This doesn’t mean they can’t build large practices. But it’s considerably harder to find ultra-wealthy investors in the market for investment professionals. Wealth management, on the other hand, encompasses both investment management and wealth planning, and financial advisors practicing it can help solve a plethora of ultra-affluent investor issues and concerns.

Understanding Wealth Planning

The tools and techniques of wealth planning range from the basic to the cutting edge, and wealth planners are knowledgeable and adept with a wide array of legal strategies and financial products, including trusts, partnerships and life insurance.

As the field becomes more complex, a number of specialties have emerged within the world of wealth planning:

Income tax planning: This involves lowering the taxes on monies investors have derived from working and is of particular interest in light of the new tax law. By adroitly navigating the tax code, advisors can take advantage of periodic opportunities to restructure clients’ arrangements and thus lower their income taxes.

Some hyper-successful entrepreneurs, for example, can legitimately restructure their corporate entities to blunt their income taxes. These strategies can be either very basic or esoteric and require the use of hedging and sophisticated investment techniques.

Estate planning: There are many ways to effectively and cost-efficiently move wealth across generations. For advisors serving the ultra-affluent, some of these approaches will have built-in money management requirements.

The ultra-wealthy want their advisors to be able to minimize their estate taxes and at the same time help prepare heirs for the challenges of taking on considerable wealth. If you can use legal structures such as trusts to do both things, your work will be greatly appealing to this segment. (And again, you can bring your expertise in professional investment management to bear.)

Marriage planning: Love doesn’t always last forever, and when new spouses join a family, there’s always a risk that the marriage could end early and the spouse could absorb much of the wealth created by others. Advisors who want to make themselves useful to ultra-wealthy families can find ways to protect that wealth. One common approach is to use prenuptial agreements, but these aren’t always popular because people see them as projecting failure on a marriage before the fact. So other approaches might be more effective—using trusts, for example, or otherwise “locking up” assets so that the financial advisors are the ones managing them.

Comprehensive exit planning: Clients are often business owners looking for ways to either sell their businesses or hand them over to a new generation. Most traditional exit planning concerns itself with taking direct steps to sell or otherwise go through a transition. But more involved wealth planning means the advisor has a role both long before and long after the sale is completed. In many situations, pre-sale wealth planning can leave more money in the hands of the owners once the company is sold. After the sale, there are usually liquid assets and assets in structures, which all can benefit from the services of an astute financial advisor, especially one bringing investment management expertise along. Such planning can leave the business owners much wealthier in the end.

Asset protection planning: Many ultra-affluent investors are also very interested in protecting their assets from possible frivolous lawsuits. The advisor’s aim is to use legally accepted concepts and strategies to ensure a person’s wealth is not unjustly taken.

An extensive and intricate set of strategies and financial products can be used to legally shield a person’s assets. The advisors and clients will have to figure out how much control they want to have over the assets and the possible consequences of being sued when they are determining which approaches to employ. Some of these asset protection solutions also have a money management component.

Charitable tax planning: The tax code encourages philanthropy, and wealth planning can take advantage of this—but only if the clients are charitably oriented in the first place. If they aren’t, there are generally other ways to get similar financial outcomes without giving.

But if they are, charitable giving also comes with money management components for the advisors—particularly when they are called upon to manage charitable trusts.

Wealth Planning Forges Connections to Ultra-Affluent Investors

Another reason wealth planning is so important to ultra-wealthy clients, beyond investment management, is that it helps them deal with family matters.

Financial advisors with wealth planning capabilities are often also seen as thought leaders and experts in their fields. They can systematically and strategically share solutions with other professionals such as accountants and attorneys, and thus become the leading authority in those webs of relationships. As such, they are more likely to get new ultra-affluent investor clients and close business much faster.

The ability to get current clients to refer other ultra-affluent investors is certainly possible, though it’s not a common occurrence. In fact, it has been empirically shown that the greater the client’s wealth, the less likely he or she will refer family members or peers to an advisor. Although there are various ways of prompting clients to make referrals, a stronger approach is to build strategic alliances with other professionals such as accountants and attorneys.

When financial advisors combine their capabilities in wealth planning with the expertise of those other centers of influence, everyone wins, from the client to the financial advisor to the professionals making the referrals. It allows the advisor to make use of the multiplier effect: The advisor provides high-caliber thought leadership content to other professionals who, in turn, share it with their ultra-affluent clients. When done methodically and consistently, the other professionals tend to generate significant revenues. And then when they have an ultra-wealthy client requiring new investment services, the financial advisor tops the list of choices.          

Russ Alan Prince is president of R.A. Prince & Associates.

Richard J. Flynn is managing partner of FFO Business Management & Family Office.