Certain trends in the private wealth industry have significant consequences for financial (and legal) professionals. If financial professionals are aware of these trends, they can act on them and benefit.

Let’s begin with three prominent structural trends.

Evolution Is Happening, Like It Or Not
The private wealth industry continues to evolve. The trends are both long term and immediate, and they will require financial professionals to adjust or refine their approaches. The trends we’ll discuss here deal with taxes, what wealthy families want from their financial professionals, and the fact that these families have become more savvy consumers of financial services and products.

Taxes are likely to rise: While we do not know just how the various tax increases proposed by the Joe Biden administration will pan out, it’s very likely taxes are going to go up, especially given the “tax the rich” mantra being used by many politicians.

Most (though not all) wealthy families find higher taxes disconcerting. Although an incredibly small percentage of wealthy families would have their capital gains taxed as ordinary income under the current legislative proposals, the possibility has been very upsetting to many. At the same time, the probable changes to the estate tax mean fewer affluent families would be subject to it.

Holistic solutions: This has been progressing for quite some time. The days of “pitching” financial products and services to wealthy families are waning fast. The affluent are looking instead for solutions to their problems rather than for mere products. That means advisors should be looking to deliver holistic advice.

More discerning wealthy families: The wealthy are becoming ever more astute consumers of financial products and services. They are increasingly more critical of the proposals and claims they hear from financial professionals.

Driving this trend is a certain degree of cynicism. Many wealthy people have come to realize that, while there are better and worse financial professionals, all financial services and products are essentially commodities. And with so many advisors seeking to win their business, more and more wealthy families likely recognize the leverage they have.

Implications For Financial Professionals
All these changes have consequences for professionals. But the trends can also offer an advisor some direction. Those who get on top of the trends will be able to deliver exceptional value to wealthy families and also build very successful practices.

Focusing on tax mitigation: Taxes have always been a major concern of the rich (and likely always will be), but the issue has taken on a more immediate concern now that the current White House has proposed tax hikes on the wealthy, whether it’s on capital gains or inherited wealth. Under these circumstances, those financial professionals who are able to provide legally viable solutions that lower wealthy people’s taxes will likely draw clientele.

Business owner clients, for example, have a lot of discretion when it comes to some of the taxes they pay. Many of them would be able to lower their income taxes considerably using defined benefit plans—especially some of the more sophisticated DB plans. Yet research suggests that many of them are unaware of these options.

What if you told the wealthy families you work with that they don’t have to pay any taxes on their investment portfolio growth? It’s very likely they would like that idea, all the more so if capital gains tax rates go up. It’s a solution that usually needs to be introduced by financial professionals. The better you are at offering guidance here and following through in blunting the effect of income taxes on wealthy families, the more likely you are to win their business.

The strong appeal of multifamily offices: A single-family office can often deliver superior results to an extremely wealthy family, usually because it is delivering holistic solutions.

But those wealthy families who can’t afford a single-family office or who prefer not to be responsible for one are gravitating to multifamily offices. They still expect holistic solutions, though—approaches that let them deal with the financial as well as non-financial aspects of their lives.

Since so many families have become attracted to multifamily offices, many firms are using that description for themselves. Yet they aren’t really duplicating the advantages of a single-family office, and the wealthy families have caught on to this bait-and-switch marketing ploy. That means financial professionals with “real” multifamily offices are the ones that will prove most successful.

Prepare to negotiate: As more private wealth is created, and as wealthy people share their information and insights with one another, they’re going to become smarter consumers of financial services and products. They will be much more critical of what they are told by financial professionals, especially when it comes to the subject of fees.

The same perspectives and methodologies being used by single-family office senior executives are being adopted by less wealthy families too. Financial professionals are going to be dealing with wealthy prospects and clients intent on negotiating fees, and the professionals had better be prepared for those talks. The discussions should center on the value that the wealthy families are getting, such as whether the executives are good at talking down fees with product and service vendors.

The changes in the private wealth industry have accelerated to some degree because of the recent crisis, and these trends will only intensify. For those financial professionals who aim to work with the wealthy, these changes ought to offer some strategic direction and let them better plan how to best serve wealthy families as well as build highly successful practices.

That means they should be able to help clients legally blunt their tax impact and be able to deliver holistic solutions along the lines of a single-family office. And remember, it also means being attuned to more discerning wealthy families who are going to want to negotiate fees and operating arrangements.

An understanding of these trends is essential for advisors who want to succeed.  

Russ Alan Prince is president of R.A. Prince & Associates. Brett Van Bortel is director of consulting services for Invesco Consulting.