[Having $10 million to invest puts you in an exclusive group of investors with a very significant quandary to deal with. Besides having access to an apparently exhaustive list of complex institutional-level and alternative investment options, this level of investment truly requires a strategic versus a tactical deployment to maximize benefits to your lifestyle and family legacy. Just be warned, properly managing this much money can be a big challenge and needs an open mindset.
To explore this further, we reached out to Institute member Russell Schultz CEO of Schultz Financial Group (SFG) — an independent RIA firm with a multiple decades-long commitment to deepening client relationships and offering a unique integrated package of services to create a working partnership with their clients. He started the firm with a belief that true wealth is measured by more than money, and that it is as much about aspirations as assets. This led them to provide a more holistic and carefully integrated family and business wealth planning approach and a “Four Capitals of Wealth” service offering that demonstrates that managing $10 million is more than just an investment activity.]
Bill Hortz: Is investing $10 Million substantially different than investing $1M or smaller amounts of money?
Russell Schultz: The answer to that question would be Yes because, at that level of investable assets, the client qualifies as a different type of investor. They are now a Qualified Purchaser (QP status), which is different than an accredited or non-accredited investor and opens other avenues of investments.
The process of investing that amount of money, though, is not that much different in the sense that you have to assess with the client what their situation is and what they want to do with the money. So, whether it is $1 million or $100 million or $250,000, it involves the same questions of determining goals, risk tolerance, and lifestyle going forward. It considers the whole picture by reviewing all the relevant factors such as the client’s age and health, anticipated inheritances, taxes, liquidity, and special needs or goals.
Sometimes it makes sense to bifurcate the portfolio which means we will set aside the amount of money that is necessary for the client to maintain their lifestyle for the rest of their life and invest that in a more conservative manner to address inflation and purchasing power, but not taking as much risk with it. And then the other portion of the portfolio is more for addressing family and business issues, building a legacy, and for future growth. This side of the portfolio may be a bit more aggressive. How to bifurcate the portfolio depends on the client and the situation, but the fundamentals that go into it are asking the same questions. It is just that the outcomes are going to be different.
Hortz: Many windfall investors may rush to invest $10 Million with the goal of living comfortably off the interest. Is that a recommended strategy or are there any significant issues to be aware of in positioning yourself to live off your wealth?
Schultz: That is why we think the financial planning aspect is so important. There are too many other questions and issues to consider than just rushing to invest it all for income purposes. Is it a windfall that you are getting an inheritance of $10 million at age 40 or is it that you sold your business at age 60? How will this impact your and your family’s lifestyle? How long does this $10 million need to support you and your family and how much risk and volatility can you take? After considering these and other planning questions, you can begin to make decisions and structure the portfolio accordingly.
Remember that this level of assets tends to bring out more costly personal goals like bucket-list travel and significant philanthropic goals. Furthermore, there are issues to address regarding estate planning and how much a client wants to leave for their heirs. There is not a one-size-fits-all investment solution of just investing for income. All these variables need to be taken into consideration, and we walk through all those considerations with our clients to come up with the outcome of what the plan is. We use the initial plan as a framework to make decisions in. Ultimately, the plan changes as clients’ lives evolve and new issues come up.
Hortz: With $10 Million you have increased investment options to diversify with, along with increased risks, complexity, and significant considerations to weigh out. What is the caveat emptor for high-net-worth investors in investing in these investment vehicles?
Schultz: I do not have a blanket statement to say on high-net-worth investments across the board but let me give an example of private credit. If you have the assets to get into private credit and lend to middle market companies and you hire an investment manager who understands the investment characteristics of that market and acts accordingly, there's an argument to be made that under those circumstances, the private credit investment is a lower-risk investment than investing into startup seed capital in a venture capital investment without a similar manager at the helm. Of course, a knowledgeable manager is just one of many factors that would affect the risk profile of each type of investment.
The QP status opens you up to a larger menu and opportunity set not available to a non-accredited investor and sometimes not even an accredited investor. The options become more institutionalized, I guess you would say, where you are now investing alongside pension plans and philanthropic organizations. But what does not change is that you have to assess the nature and quality of those investments and the risks embedded in that larger opportunity set. As a registered investment advisor that acts as a fiduciary for our clients, we help clients assess the risk and reward and appropriateness of this expanded menu of investments, considering our clients’ personal financial needs and goals.
Hortz: Can you walk us through some of the main high-net-worth investment vehicles you tend to use and provide us with the pros and cons that you help clients consider?
Schultz: The main thing to start with in answering this question is to discuss the differentiation between liquid and illiquid investments. You have to structure the client’s investment portfolio strategically depending on all the personal variables and goals we addressed at the beginning of this discussion before we can determine how much of the portfolio can be illiquid and over what periods of time.
When we are talking about real estate, private credit, private equity, and other alternative investments, many are illiquid. They are usually tying up money somewhere between four to 10 years. So, you need to manage that component against public securities or hedge funds that normally have quarterly, semi-annual, or annual liquidation provisions. That is the first part of the equation in those areas. That is a real distinction. I would not call it a con for these investments, just the rules of the road that you can manage.
As to the benefits, these investment vehicles open up a rich set of investing options and each one of these areas has subsets to it. When you talk about private credit for example, that could be middle market lending, real estate-oriented, legal financing, or it could be opportunistic by providing lines of credit for a company with some underlying benefits.