The worlds of the ultra-wealthy (net worth = $30 million or more) and even more so the super-rich (net worth = $500 million or more) is growing at a precipitous rate. Without question, the rich are getting significantly richer and there are more of them.
While, on the surface, this bodes well for financial advisors and other professionals, there are headwinds. Competition for these clients is more intense than ever before. With potential broad-based industry difficulties such as fee compression and the commoditization of services and products, the attractiveness of the ultra-wealthy multiplies.
What is consistently proving to be a service in extreme demand by the ultra-wealthy is stress testing. While fairly common among the super-rich, stress testing is now becoming more and more normative for those of lesser wealth.
Understanding Stress Testing
While more and more professionals are talking about stress testing, relatively few of them are proving adept at it. By definition: Stress testing challenges a client’s wealth management solutions to assess the likelihood of their holding up in different scenarios and delivering the desired results.
Simply put, the rationale for stress testing is twofold:
• To avoid potentially economically and legally destructive situations.
• To ensure the client is benefiting from all possible wealth management opportunities.
Where a great many legal and financial advisors fall way short in their approach is because stress testing is not primarily (or even secondarily) about the financial products or legal strategies being employed by the client. The mechanics of a client’s wealth management solutions do need to be evaluated. However, this is comparatively simplistic compared to the essence of stress testing. When it comes to stress testing a client’s wealth management solutions, the human element is far and away the most important factor.
The human element is the personal and emotional component of wealth management. It encompasses everything and everyone that is important to the client as well as everything and everyone that could be affected by the wealth management solutions. For the best professionals, it is not the tool kits they have, but their knowledge and skill to use the most appropriate tools that best achieve a client’s agenda.