Inside the Minds of the Ultra-Rich

Financial managers and advisers must first understand the affluent client or business owner to know how to serve them. See how CPAs are responding: join the new study.

by Rick Telberg

With trillions of dollars in family and family-business assets poised to change hands in the next 10 years, affluent clients and business owners are facing a need for smart financial, succession and estate planning unlike any other time in history.

CPAs and financial managers would seem to be uniquely positioned to aid this cadre of the ultra-affluent. But you can?t help them if you don?t know who they are and what they want.

The research firm of Harrison-Taylor, in conjunction with Worth magazine, has now issued an interesting new study on the super-rich, defined as possessing at least $5 million in liquidity. Most of these people are self-made millionaires, like most Americans who have made it to this level. They retain many of the same worries and hopes they had when they started out. But today they have even more to worry about. Not that anyone should worry for them; they are, after all, well insulated from falling back into the middle class. But their issues are complex ? technically, strategically, and, particularly, personally.
Wealth advisers who guide these entrepreneurs often gripe that it?s hard to get these clients to focus on the important, long-term decisions. In fact, Harrison-Taylor found that only about half of the respondents even have a well thought-out business succession plan. But half of the entrepreneurs plan to sell their business before retirement. (Come to think of it, the same could be said of CPA firm owners.)

Another 30 percent will pass the business to their children. And most of the rest have taken or plan to take their company public.

Where do you find these people? Here are a couple of clues: Most of them have vacation homes, so look in resorts or connect with real estate agents. And most sit on boards of directors, with 57 percent on not-for-profits, and 39 percent on corporate boards. About 44 percent use private bankers to manage their affairs, but 43 percent are less than ?very satisfied? with them. The old saw about practice development through community involvement and networking with lawyers and bankers makes as much sense as ever.

What do the super-rich care about? Answer: Mostly, and like most people, they care about their children. Half are worried that their wealth will warp their kids? values, so eight in 10 encourage their kids to get after-school jobs. Hey, shouldn?t some of those kids be working in your firm?

But a quarter of the ultra-affluent won?t even discuss the value of their holdings with their kids. That?s short-sighted, and a responsible adviser should try to convince a client to educate his or her children about money and business management.

Here?s the kicker: Only 70 percent of the affluent report having an up-to-date, professionally devised estate plan. And about 20 percent don?t even have an up-to-date will. ?Given the sums involved and the complexity of their portfolios,? the study’s authors say, ?this could cause the heirs of the other 30 percent significant grief.?

It?s your job to make sure your clients and business owners understand that they can come to you now, to confront the tough questions and lay out the far-reaching strategies required, or their children will be coming to you later ? to sort it all out. Which option do you think a smart client would choose?

TODAY’S ACTION ITEMS
1. Determine those among your clients who plan to sell their business before retirement. And get on the team.
2. Identify which clients don’t even have a comprehensive succession or estate plan ? and pursue them.
3. Local networking remains the best entry into the affluence niche. Get involved.
4. Build relationships with the next generation.

(First published by the AICPA)

Posted on December 12, 2005