Scenario #1: An ultra-wealthy client is considering giving up his U.S. citizenship and moving his second family to France. His first family is estranged, which has resulted in an ongoing lawsuit. He has significant business interests in the U.S. and throughout Europe, all of which he owns directly. His investment portfolio exceeds $50 million but is collateralized, and he wants to restructure the arrangement and desperately mitigate the taxes of the cash coming out.
Scenario #2: An ultra-wealthy client is considering selling her stake in the family business. She thinks the offer and terms the family provides are low and restrictive. She loves her four children dearly, although two of them, according to her, made bad marital decisions. This makes her question how to divide her estate. She wants to maximize the money her family receives for the sale of her share of the business and ensure the wealth benefits her family for generations.
Scenario #3: An ultra-wealthy client has a history of getting questionable financial advice, which has resulted in paying back taxes and significant fines on a couple of occasions. He has considerable commercial real estate holdings and a liquid portfolio approaching $100 million, which generates millions of dollars in taxes annually. He is concerned about lawsuits, both personally and professionally, as he has seen them decimate the fortunes of associates. He is also very concerned about estate taxes but is adamantly opposed to getting life insurance.
At least 10 possible wealth management and legal solutions exist in each of these scenarios. It is impossible to determine which makes sense for these ultra-wealthy clients without a greater understanding of their objectives and financial picture. Because situations like these are becoming more common, many wealth managers are turning to other professionals, including their peers, for assistance to deliver exceptional value to their wealthier clients.
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It is a notable trend that wealth managers are increasingly collaborating to serve their wealthier clients. In a survey of 421 wealth managers, a third reported working jointly with wealthy clients in the past two years (Exhibit 1). These wealth managers are relying on other wealth managers for support.
In these cases, revenues are shared between the wealth managers. Therefore, it is safe to conclude that introducing other wealth managers is an option only when wealth managers cannot address their wealthy client's needs and wants. The logic for introducing a peer and sharing revenues is straightforward.
1. Wealthy clients are better served.
2. A percentage of significant revenue dollars is better than all of nothing.
3. Not helping wealthy clients deal with their expressed and latent needs will result in losing them to other wealth managers.
For these reasons, wealth managers turn to their peers for assistance. This makes perfect sense, yet there are many stories of such arrangements going bad. Of the 146 wealth managers who attained assistance from other wealth managers, 45% found the experience problematic (Exhibit 2). These problems boil down to selecting the wrong wealth managers to introduce to their wealthy clients.
You want to follow some rules to ensure optimal results for you and your wealthy clients. If you bring a wealth manager to one of your wealthy clients, that professional must be technically expert in ways you are not, process-oriented, and aware that the wealthy client is yours now and ongoing.
Rule #1: Select A Technically Expert Wealth Manager
Qualifying the technical proficiencies of any professional you introduce to your wealthy clients is essential. This means you must know they have the expertise your wealthy client requires that you do not. Most wealth managers do not need assistance unless the wealthy clients have complex professional and personal lives, which regularly means they are wealthier and often have significant business interests.
According to Homer Smith, Director of the Integrated Family Office, “We designed the family office practice to work with the ultra-wealthy to deliver the same advantages the best single-family offices deliver to the super-rich. We can provide a complete array of wealth management and lifestyle solutions cost-effectively. We aim to ensure our ultra-wealthy clients make smart solutions. Because our capabilities are much more extensive than those of many wealth managers, some of them, when faced with multifaceted, complicated cases, are leveraging our expertise to benefit their clients.”
Many wealth managers have limited experience working with the very wealthy who have complex lives. They also lack the infrastructure to deal with the goals, concerns, and financial possibilities available to these clients.
Pro tip: You need to critically evaluate the breadth and depth of the technical proficiencies of any wealth manager you would introduce to your wealthy clients.
Rule 2: Select A Process-Driven Wealth Manager
Extensive technical expertise is critical but insufficient when working with wealthier clients. Being facile at determining wealthy clients' hopes, dreams, concerns, and anxieties is equally essential. The complication is that many highly technically proficient professionals are limited, resulting in little or no business and conflicts with the wealth managers making the introductions and their wealthy clients.
Processes like Everyone Wins are instrumental in developing a deep understanding of wealthy clients, including billionaires. This understanding, coupled with high-end technical expertise, optimizes their financial lives. With the wealthy, for example, pitching financial strategies and products, which is the dominant approach in the industry, is marginally effective and will not always deliver the desired outcomes. Instead, additional opportunities to add value are regularly found using the Everyone Wins process, aside from the presented issues.
Pro tip: You need to understand and be very comfortable with the approach and philosophy of helping clients of any wealth manager you bring in to work with your wealthy clients.
For example, proficiency in collaborative thinking is incredibly effective in assisting wealthy clients to make smart financial and lifestyle decisions. The wealth managers you are considering introducing must be able to show you how they do this.
Rule #3: It Is Your Client And Stays Your Client
This rule is often less about wealthy clients and more about your wealth management practice. You can hand your wealthy client off to another wealth manager or be involved in delivering financial strategies and products. You can be compensated either way. Few wealth managers who bring in a peer to help do not want to be involved. If you want to be involved, you must ensure, from the beginning, that you are always involved and managing the client relationship.
“While our role is to support the wealth managers who bring us in to ensure their wealthy clients get superior results, we recognize that we’re here for a specific purpose and are not being ‘given’ a client,” says Smith. “For example, before discussing any solutions with a client, we go over them in detail with the wealth managers who brought us in, and it’s their decision whether to bring the ideas to the client.” Handoffs tend to work poorly. Moreover, when the wealthy client makes referrals, which happens often, you are out of the picture.
Pro tip: By staying highly involved, you ensure that your wealthy clients receive exceptional value and that you receive the revenues and referrals you deserve.
When You Will No Longer Need To Bring In A Peer
When wealth managers bring in peers and stay involved, they become more knowledgeable and skilled. This usually happens quickly. Learning by doing is incredibly more powerful than learning any other way. Furthermore, when significant dollars are involved, wealth managers pay great attention.
By following the three rules, you will likely become more competent and no longer need to rely on other wealth managers. What has occurred with some frequency and can happen for you is that other wealth managers will bring you in to help them with their wealthier clients.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.