Advising the Ultra-Wealthy: A Guide for Practitioners

By Gregory Curtis

This book, designed to be a guide for practitioners who wish to advise ultra-wealthy families, focuses on the difference between the ultra-wealthy and the ‘merely’ wealthy. With this in mind, the chapters devote little time to issues on which most financial advisors spend most of their time—retirement planning, IRA accounts, home mortgages, planning for college tuition, or financial planning in general. Practitioners working with the ultra-wealthy will instead need to grapple with complex tax issues, matters associated with the ever-changing world of trusts, the special world of the family office, money managers that are not available to anyone who is not an accredited investor or who enforce very high minimum account sizes, the family dynamics and human capital issues that destroy both families and wealth, and so on, all of which will be covered on a global scale in this book.

• Language: English
• Publisher: Palgrave Macmillan
• Release date: Nov 27, 2020
• ISBN: 9783030576059

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© The Author(s) 2020

G. CurtisAdvising the Ultra-Wealthyhttps://doi.org/10.1007/978-3-030-57605-9_1

1. Ultra-Wealthy Families and Their Financial Advisors

Gregory Curtis¹  

(1)

Greycourt & Co., Inc., Pittsburgh, PA, USA

Gregory Curtis

Email: [e-mail]

Reporter, buttonholing an oil tycoon: Sir, are you aware that your son just lost one million dollars on a sports franchise?

Tycoon: At that rate the boy’ll be broke in 315 years!

No, a family doesn’t have to have $315 million to be considered ultra-wealthy, though it certainly helps. In reality, being ultra-wealthy is more a state of mind than an amount of money. A family that takes its wealth seriously—one that focuses on the stewardship of that wealth for future generations, that thinks dynastically —is far more likely to be, and continue to be, ultra-wealthy.

On the other hand, no matter how much money a family controls, if that family treats its wealth frivolously, if it over-spends and under-invests, if it ignores its own human capital , that family won’t be wealthy for long: shirtsleeves-to-shirtsleeves in three generations has been, and always will be, the norm for most families.

All that said, an ultra-wealthy family needs to control a certain minimum amount of capital. There is no absolute cut-off or minimum, but it’s useful to note that most of the better wealth advisory firms have minimum account sizes of $50 million to $100 million. (Or at least minimum account fees that back into accounts of that size.) Some families with less capital than that will still be ultra-wealthy-like, but most won’t be.

To put these numbers in perspective, note that the average American family has a net worth of about $700,000, and most of that (north of 70%) is tied up in their homes. And the median net worth is far smaller—less than $100,000. Obviously, ordinary Americans don’t have much liquid capital to invest, and what they do have is likely to be in a retirement account—IRAs and 401(k) plans, for example.

Wealth is very unevenly distributed in most countries, and the US is no exception. According to an analysis by the University of California at Santa Cruz,¹ the top 1% of families own 35% of all wealth and the next 19% control an additional 50%. On the other hand, when people refer to the top 1%, they aren’t referring to what I am discussing in this book. To be in the top 1% in terms of wealth requires a net worth of only about $5 million. In other words, the ultra-wealthy are—at least!—the top 1% of the top 1%.

As families climb up the net worth spectrum, they begin to resemble the ultra-wealthy, albeit with less complexity, especially regarding family office issues. Still, the main point is that while advising an ultra-wealthy family is nothing like advising a mass affluent family (people with @ $2 million–$5 million in investable assets), it is really a spectrum. By the time advisors are working with families with $25 million, even if it’s only a few clients, they are dealing with issues quite similar to those faced by the true ultra-wealthy.

For purposes of this book, I consider the ultra-wealthy to begin at the $50 million level and preferably higher—many of the best wealth advisory firms enforce a $100 million minimum account size. But of course, there are exceptions. Consider a family with $40 million of liquid capital but which controls a business worth $300 million. Such a family will still operate under the same investment constraints as families with $25 million or less, but they will also have the resources to behave, in most ways, like a true ultra-wealthy family.

Such a family will likely have established a family office—perhaps with some of the company executives playing dual roles at the company and the family office. The family will need to take seriously such issues as succession planning (since that will affect the company as well as the family), human capital, family dynamics, and so on. This family’s investment portfolio might look a lot like that of a smaller family’s, but they are truly in the ultra-wealthy category.

What Does It Take to Remain Ultra-Wealthy?

Remaining wealthy—to say nothing of ultra-wealthy—requires a family to succeed on many fronts. That’s why so many families fail. Here, in roughly their order of importance, are the main challenges the ultra-wealthy face:

Maintaining and, if possible, improving, the family’s human capital.

Controlling spending.

Learning to govern the family wisely.

Planning for succession in family leadership.

Educating younger family members in the obligations and skills of stewardship.

Putting in writing all the key family policies: spending, governance, succession, investment, and so on.

Employing only best-in-class advisors across the board.

Developing an investment strategy that is appropriately designed to meet the family’s risktolerance and investment objectives on an after-tax basis—regardless of how different that strategy might be from the strategies pursued by others.

Optimizing investment fees as well as fees paid to other advisors.

Investing with only the best investment managers and funds available, and avoiding high-cost proprietary products.

In the chapters that follow, I will address each of these challenges, as well as others, and will suggest best practices that, if followed by advisors and the families they work with, will stack the odds in favor of remaining in the ultra-wealthy category while most others fall by the wayside.

What Human Skills Are Required to Advise the Ultra-Wealthy?

I often hear it said that a successful wealth advisor must be both a first-rate investment professional and also a talented psychiatrist. That is an exaggeration—the ultra-rich are perfectly capable of finding their own therapists—but there is a kernel of truth to it. Wealth advisors don’t need to be psychiatrists, but they do need to be good listeners.

Of course, all good advisors listen carefully to their clients before making recommendations, but the level of complexity of ultra-wealthy families requires a whole new level of listening. For example, I have sometimes worked with families for more than a year before making any major changes in their portfolios or