Working With the Wealthy
Refresher reading access
Introduction
This reading introduces frameworks and tools to help private wealth advisors work effectively with wealthy clients. These include methods for understanding wealth in human and family dynamics, what distinguishes different groups of wealthy individuals, and their differing needs and expectations, with particular attention to ultra-high net worth (UHNW) clients, as well as how to facilitate and promote good family governance. We focus on both the social and psychological aspects of wealth and how these shape the “wealth identity” of clients and on practical tools and structures including family offices and family constitutions that are key to realizing wealthy clients’ goals and aspirations for their family businesses, transitions in leadership, estate planning, and philanthropy.
Learning Outcomes
The candidate should be able to:
- describe how family and human dynamics relate to wealth and its management;
- describe skills needed in profiling, acquiring, advising, communicating with, and educating private clients;
- describe the unique characteristics of ultra-high-net-worth individuals and how these characteristics distinguish them from other private wealth management clients;
- recommend appropriate approaches to the development, implementation, adherence, and amendment of a common, long-term framework for joint family decision making.
Summary
- Wealth in human dynamics can be understood using a framework organized around the following elements: shared sets of norms, clear roles, established power structures, forms of communication, and rituals and traditions.
- Individuals’ and families’ responses to wealth are shaped by various social and cultural factors captured in Hofstede’s six-dimensional framework: individualism/collectivism, uncertainty avoidance, masculinity/femininity, power distance, long-term versus short-term orientation, and indulgence versus restraint.
- Private wealth clients can be classified across three demographic characteristics: wealth levels, generational cohorts, and means of acquiring wealth.
- Following sound ethical practices, building trust with clients, and effective communication strategies are all essential for the private wealth advisor in effectively carrying out their role.
- UHNW clients, typically defined as those individuals with more than USD30 million (equivalent) in investable assets, present a unique set of challenges and opportunities for the private wealth advisor in terms of their differing needs and expectations, and how they are met, compared to the mass affluent clients (those with USD100,000 to USD1 million in investable assets).
- One of the key structures through which UHNW clients’ needs are met is the family office, including single-family and multi-family offices and variations of them.
- Issues in family governance are essential for all wealthy families but are even more critical for UHNW and high net worth (HNW) clients. HNW clients are typically defined as those individuals with over USD1 million in investable assets.
- For such families, a sound family governance strategy includes a family constitution that typically focuses on transparency and collaboration, family business management, succession rules, and philanthropy guided by family values.
- All HNW family members must have wills in place so that a smooth and efficient transfer of resources and responsibilities can proceed under the guidance of the family constitution following the death of a member. Additionally, a living will can offer valuable guidance to family members regarding treatment and care in the event of an accident or a terminal illness.
2 PL Credit
If you are a CFA Institute member don’t forget to record Professional Learning (PL) credit from reading this article.