This is an edited extract from the Professional Planner ‘Guide to advice for high-net-worth clients and family offices’, download the full copy of the guide here.
Since the advent of financial planning in Australia, a point of contention has been whether advisory firms should provide investment advice.
In one corner, there are those who believe that financial advisers should focus on strategic advice, spanning superannuation, tax and retirement planning, but leave the execution of picking investments and managing portfolios to external fund managers.
In the opposite corner are those who argue that investment advice is a core part of the advice proposition.
Both sides have valid points, but what’s appropriate will differ depending on the advisory firm, including their business model, capability and clientele.
While this debate is important, when it comes to serving high net worth (HNW) and ultra-high net worth (UHNW) clients, including family offices, investment advice is not up for discussion, it’s a foregone conclusion.
Wealthy people expect their advisers (plural) to be experts in their field and take care of their affairs.
They don’t employ generalists because they need, and have the means to pay for, specialists.
This is certainly the case with accounting and tax, legal, and medical professionals.
Financial advice is no different.
Private wealth firms are expected to be specialists, or co-ordinate access to specialists, for all things wealth management including investments, philanthropy, estate planning, aged care, and the smooth, tax-efficient transfer of wealth between generations.
HNW clients also expect the service and advice they receive, including their investment portfolios, to be customised and tailored to their specific needs and objectives, particularly as the rules of thumb that apply to most people around things like time horizon, liquidity and risk appetite may not apply to them.
As a result, their capacity to invest in riskier assets that offer the potential for higher returns is greater because of the financial buffers in place, assuming this makes sense for them.
Those buffers also mean that HNW clients, irrespective of age, don’t have the same need for income and liquidity as mass affluent clients, enabling them to access asset classes with longer time horizons and different liquidity profiles.
Private market assets, like private equity, private credit and private infrastructure, fall into this category and HNW investors have been a key driver behind the exponential growth of private markets both here in Australia and in offshore markets.
Aside from money
Apart from their financial wealth, other characteristics and qualities that set higher net worth clients apart from the mass affluent include the global nature of their lives, their mindset about money, and the complexity of their needs and interests, which commonly include business succession, tax management, legacy planning, philanthropy, and multi-generational advice.
Many HNW clients, particularly self-made first-generation wealth creators, also want control over investment decisions, although the further up the net worth spectrum you go, the more comfortable clients, particularly those who have inherited generational wealth, are with delegating authority to a multi-disciplinary advisory firm or family office.
In terms of attitudes and mindset, HNW clients are keener to explore exclusive investments with strong fundamentals that offer higher-risk, higher-reward potential as part of a broader diversified strategy
While every HNW client will do things differently, a common thread is that many keep a portion of their wealth and portfolio aside for unique, high growth opportunities.
Consequently, the types of conversations that HNW advisers have with their clients are significantly different to the conversations that mass affluent advisers have with their clients.
For advisory firms that specialise in advising HNW clients and have the infrastructure, teams and networks to meet their unique needs and challenges, the ability to have deeper, more sophisticated conversations, and build and manage bespoke investment portfolios that go beyond the plain vanilla, is essential.
Specialist advice
Leading private wealth firms aren’t successful by chance. They have made a deliberate decision to specialise.
They know what their ideal client looks like, what they value, how they spend their time, and they have what it takes to meet their needs.
That’s more than just swanky offices, expensive suits, and memberships to the right clubs. It’s more than just an excellent understanding of superannuation legislation, financial markets and the economy.
It’s also the soft skills, character and professionalism required to be discrete and earn their clients’ trust.
Ultimately, rich people are just people. They have the same basic needs as everyone else, in terms of access to capital, income and financial peace of mind, it’s just that these needs are more easily met due to their wealth.
Alongside the benefits, significant wealth can bring significant challenges. Expertise, empathy and genuine care to meet these challenges can be hard to come by, which is why HNW clients need a trusted adviser in their corner.
Andrew Fairweather is the Chief Executive Officer of Fitzpatricks Financial Group.
