Most of your clients have worked hard to amass their wealth. And while many understand the importance of proper wealth planning, there are some who think they can go without. According to The Wall Street Journal, ultra high net worth individuals – those who have nine figures or more to their name – may be lulled into a false sense of security. After all, they may have more money than they could spend in a lifetime, so there could be little motivation to focus on specific savings goals. There are few concerns that they will not have enough in saving for a lavish retirement and even their children are more than likely set for life.
However, according to Doug Black, a wealth consultant from Rockville, Maryland, setting goals and saving money is still important for the very wealthy.
“It’s just that the numbers are bigger,” he told the Journal.
The main reason for such planning is that even a large amount of money can be drained. Habits like owning or traveling by a private jet or owning multiple homes around the world can sap up finances more quickly than your clients might realize. The result can mean your once-wealthy clients may not be able to reach their philanthropic goals, leave enough money to their heirs or simply run out of money.
“We see this all the time,” Black told the Journal. “You look out 20 years and there is no money left. These are not $2 million households, these are … $50 million households.”
What steps you should take with your clients
The first move to make with your high net worth clients is to make sure they understand how to sustain their wealth. Have them set specific financial goals. These may be philanthropic in nature, a set amount they would like to leave as a legacy for their family or simply to be able to pay for their grandchildren’s education. Then, set a timeline to achieving these goals. Those who came into their wealth at a young age or are themselves the product of a legacy from wealthy family members, you may find that they have never had to set a budget in their lives, so be prepared for surprise or even pushback.
Take into account the size of the legacy they want to leave, and the costs associated with such an inheritance. Estate taxes, the family’s consumption and any donations planned need to be taken into consideration to ensure their plan is realistic.
Robert Matthews, the CEO of a financial planning firm in Connecticut, told the Journal that he generally starts the process with a mission statement to determine what where any assets will be allocated. He recounted the story of one client who ran a large public company. This client, despite his notable wealth, realized that despite large investments and a generous pension plan, the rate at which he and his wife were spending money meant he would not reach his retirement goals and wishes to leave money to his children and charity. Because of this, the couple is planning to cancel two golf club memberships, cut down on travel expenses and reconsider their plans of adding a heated underground garage to their home.
Understanding the importance of wealth planning
Though wealthy clients may not have entertained the fact that they need a budget, the truth is that proper wealth planning is the best way to ensure property is distributed as to your clients’ wishes, maintaining their standards of living and reducing both estate and gift tax liabilities.