Are you giving high-net-worth (HNW) clients what they need and deserve? That question is top of mind for many advisors these days.
Recruiting and keeping HNW clients involves a special set of skills and solutions. This group has varied needs, but at base, each client tend to be looking for ways to further diversify their holdings, mitigate taxes, and simplify complex estates.
They may also need guidance, however, through business continuity situations and large liquidity events — many are business owners, C-suite executives, partners, and holders of legacy wealth.
As an advisor who wants to work with more of these clients, do you understand your HNW clients — and have the skills, products, and services you need to help them thrive? Here are seven ways to cater to your HNW client base:
1. Offering Portfolios Meant to Help Them Achieve Complex Goals
For HNW clients, tax efficiency, portfolio diversification, and bespoke solutions loom large. Two key elements to keep top of mind when building the core competency of an HNW investment strategy are:
• Separately managed accounts: SMAs help you construct portfolios using individual stocks and bonds with an institutional money management overlay.
• Exchange-traded funds: ETFs give investors access to diversified baskets of investments while maintaining the tax-efficient characteristics of stocks.
HNW clients are likely to be more able to tolerate a lack of liquidity. That may enable strategy-specific, active managers who offer unique investing approaches to consider alternative investments such as:
• Hedge funds: Actively managed, pooled investments with varied and flexible strategies (e.g., long/short, derivatives, fixed income, and currency), hedge funds can provide additional diversification to a core portfolio while offering the potential for outsize returns with low correlation.
• Structured products: Custom investments often offer downside protection connected to other investments’ performance. Some structured products can be constructed with a concentrated position; others provide an insurance element in volatile markets.
• Private equity and venture capital: Investment in a firm gives majority equity ownership while making the existing business better. Chances for such investments are enticing because they give access to an investment on the ground floor or in growth mode that is not publicly traded.
• Real estate investment trusts: As real property investments with an income component and long-term appreciation, REITs add a nonmarket or fixed-income-correlated income stream with upside potential.
• Initial public offering: IPOs give investors access to companies that are just becoming publicly traded, typically offering growth potential and momentum.
You’ll need to take certain risks into account with any investment strategy. You can alleviate these risks through asset allocation and diversification, insurance, trusts, and other solutions.
2. Providing Advice for After Retirement and Legacy Preparation
For HNW clients considering retirement, focus not on if they can make it through retirement, but on how they will use their funds to make the most of retirement; position their assets to reduce taxes and secure their legacy. Be ready to talk about generational wealth transfers, efficient income distribution, and trust planning.
For trusts, you’ll want to work with their estate attorney and CPA to make sure that:
• The goals for each trust align with the selected trust vehicle.
• Target tax rates for distribution are discussed.
• Trust activity follows best practices and current law for their lifetime exclusions.
• The client selects an appropriate and independent trustee to carry out their objectives.
The trust review process gives you a chance to reinforce trustee engagement and determine whether a corporate trustee is appropriate. Here, you might consider:
• Working with your firm partner to conduct an independent trust review.
• Engaging a personal trust service provider (at Commonwealth, for example, advisors can take advantage of our relationships with firms such as BOK Financial and Fidelity Personal Trust Company).
• Completing additional education programs (e.g., CFP, CPWA).
3. Increasing Engagement with the Next Generation
What do HNW clients want after retirement? To leave a lasting legacy that likely will benefit the next generation. To be prepared, you’ll need a full idea of that next generation’s goals and wishes to purposefully engage with them. Here is how to get started:
• Promote family discussion. Start by meeting with immediate family members to gain a sense of the values your client wants to impart and discuss how those values can be passed on through generations.
• Engage stakeholders in their parents’ legacy discussion. Create an inclusive setting that enables your client to express their vision while allowing space for the next generation’s involvement. Your aim is to guide their strategy toward achieving both a lasting legacy and a sustainable multigeneration financial plan.
• Aim for a direct relationship with family members where possible. As you inform and educate the next generation about the dual role you can play—as both the advisor of the family’s wealth and a resource for individual family members’ financial needs—assess the situation to determine how direct a financial relationship you may foster with those members of the family. In some cases, for example, the advisor may strictly control what descendants are allowed to spend on a monthly basis.
4. Including Charitable Giving Strategies
One of the best ways to help your HNW clients is to set up charitable planning. Giving strategically helps clients reduce taxes while benefiting the organizations they want to support. In addition to making outright gifts (e.g., cash, stocks, or other assets) to qualified 501(c)(3) charities, they can use a strategic plan to give back in ways that align with their family goals and values, thus creating an impact across generations while maintaining some control.
Such a plan would likely include:
• Donor-advised funds: For these charitable investment accounts, the client becomes the grant advisor on the funds and receives a deduction for transferring cash or appreciated securities into the account.
• Charitable remainder trusts and charitable lead trusts: This trust structure returns a stream of income to the grantor (or to the charity, in the case of a charitable lead trust) over a specified number of years or for life. The charitable deduction is based on a calculation of the anticipated remainder or the stream of income for charitable lead trusts.
• Qualified charitable distributions: Donors may also contribute to a charity directly from an IRA, up to a maximum annual limit of $100,000 (indexed for inflation under the SECURE 2.0 Act), and they may use the amount transferred to offset their required minimum retirement account distribution for the year. And although making the gift won’t grant the donor a tax deduction, no taxes will be due on the distribution.
5. Giving Clients Lending Solutions and Advice
Another way you can demonstrate value with HNW clients is by addressing both sides of the balance sheet. For example, offering lending options can help HNW clients leverage major purchases. Bridge loans can help with tax bills and real estate investment. Existing portfolios can secure these lines of credit—or they may be unsecured.
6. Considering How Your Clients Can Retain Their Business Growth and Legacy
HNW clients who run businesses can benefit from insights on how to recruit, retain, and reward key employees. Here is how to help:
• Have them offer retirement plans that give top talent an incentive to stay.
• Have them provide add-on options, not only the standard offerings of 401(k), profit sharing, and cash balance plans. More-involved solutions to consider include stock options, and employee stock purchase and employee stock ownership plans.
• Encourage succession planning. Many business clients do not have a formal plan in place to monetize or transition their business. By bringing them in on this type of planning, you can position yourself as a trusted resource throughout the process – and help them preserve their legacy.
7. Leveraging Financial Planning Software that Shows the Entire Picture
Financial planning software can be essential to mapping out and planning scenarios for HNW clients. Here, you can also show the value you add. The right technology tools can help you:
• Take in all aspects of your client’s financial situation.
• Communicate a larger picture, showing where they started and where they are headed.
• Demonstrate your understanding of what is important to them as you work together on goal planning, the purchase or sale of a business or real asset, executive compensation options, or the flow of assets through their trusts.
Some of the market’s top financial software planning tools include RightCapital (cash flow-based financial planning software that includes retirement planning, student loan debt planning, and social security optimization), eMoney (cash-flow planning software tool with tax and estate planning modules), MoneyGuidePro (goal-based financial planning software), and Holistiplan (tax planning software).
Are You Prepared to Give HNW Clients What They Deserve?
It’s clear that HNW clients’ needs are multifaceted and diverse. Getting and keeping their attention requires having a variety of skills and resources at your disposal. By understanding how these clients’ needs may differ from those of other client groups, however, and by using the resources available, you will be ready to take on HNW clients and provide stellar service and a financial plan they can count on.
Martin Baker is a supervisor, virtual paraplanning, and an advanced planning consultant with Commonwealth’s Advanced Planning team. With the firm since January 2019, he provides financial planning support for our affiliated advisors, including estate, trust, charitable, education, business, and social security planning strategies. Martin holds a BA in finance from Bentley University, the CFP® designation, and FINRA Series 7 and 66 securities registrations.
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, utilizing complex financial derivatives, adverse market forces, regulatory and tax code changes, and illiquidity. Diversification does not assure a profit or protect against loss in declining markets, and no strategy can guarantee that any objective or goal will be achieved.
Commonwealth, BOK Financial, and Fidelity Personal Trust Company are separate and unaffiliated entities.
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