Helping high net worth clients sleep at night
Money won’t solve all your problems, the saying goes. But the advisor who can help high-net-worth clients address their unique concerns will become valued — and will attract even more wealthy clients.
It’s more than selling a life insurance policy or devising a retirement plan. Advisors who specialize in the HNW market said their ability to be a trusted partner on their clients’ financial journeys and to be part of their clients’ professional team help them ease some of the concerns that often come with having wealth or financial success.
What is a high net worth individual and how many of them are there?
Although there is no official or legal definition of high net worth, financial professionals use the term to describe anyone who owns liquid assets valued at $1 million or more.
The 2023 Credit Suisse Global Wealth Report estimates that nearly 24.5 million Americans are in the high net worth bracket.
Advisors who have found success serving the high-net-worth market shared some of their secrets to gaining the trust of their wealthy clients and presenting solutions that help them sleep at night.
Get in on the ground floor
Everyone wants to work with a client who is wealthy, but not everyone wants to work with that same client before they make their first million, said Ted Shanahan. Shanahan is a partner with Blueprint Financial Group, headquartered in Reston, Va., and part of Northwestern Mutual Private Client Group.
Wealthy clients come from one of three groups, Shanahan said. They either come from inherited wealth, worked in a publicly traded company and became wealthy through their stock options, or concentrated their efforts on building a business and then monetized that business in the future. It’s the latter group that Shanahan focuses his practice on.
“My world has always been the world of those people who have started their business and then the business itself created the high-net-worth environment,” he said. “I work with owners of closely held businesses primarily because I have a closely held business. I can relate to them, and they can relate to me.
“I also understand their journey. Their journey often means making decisions because closely held business owners own that business for their personal plan. So, in essence, we sit at the intersection of the business owner’s business plan and their personal plan. That’s because ultimately their business plan will be the funding mechanism for their personal plan. Through monetizing the enterprise value of their business, this can create an environment to provide for their family through multiple generations.”
Shanahan said the most satisfying aspect of his practice is working with clients while they begin to grow the business that eventually leads to their becoming wealthy.
“In the beginning, we work with that business owner to put in place employee benefits, health insurance and a 401(k) plan,” he said. “As their business plan becomes more sophisticated, they need to create buy-sell agreements so if their partner passes away, they can pay the estate or the spouse of that partner for their interest in that business.”
Shanahan said he aims to be a trusted advisor to the owner of a business in the startup phase, protecting their interests and providing a strategy to attract and retain employees.
“Then as they build that business, we can help them strategize ways to make sure their enterprise value is protected,” he said.
As the clients continue their journey, Shanahan introduces them to attorneys and accountants who can help put trusts in place “so that when the business owner does monetize their business, their money doesn’t all go to their estate where it may be taken away in estate taxes.”
Shanahan said he begins working with high-net-worth clients “before they are who they want to be.”
“We help them become the person they want to be,” he said. “When people come to us and they tell us who they want to be, it’s not who they are today. They say, ‘I want to be a successful businessman. I want to be a great parent, educate my children, have a house and a vacation home, and make an impact in my community. I want to do all these things, but I’m not quite there yet.’
“What we do is sign them up to become that person that they want to be someday but are not right now. But we don’t help them make it easy. Building wealth is hard. We want to walk that path with them.”
Getting a wealthy client to agree to do business with you is difficult, Shanahan said. He takes a different approach to seeking clients.
“After someone sells their business, after they have a few million dollars, everyone is out there trying to get them as a client. We’d rather get someone as a client before they’re there and help them grow to become who they are. We do a lot of it through business planning, and often the first products we put in place are employee benefits.”
Shanahan said the best way to obtain high net worth clients is to begin working with them before they become wealthy.
“Before all the sharks go after them, I would go after clients and help them with the vision of what they want in the future. Be relevant to them early on. Because once they have that high net worth, they might not have had all the necessary planning done along the way. If you can enter into a relationship with them when you can be most relevant to them, you’ll go where the competition isn’t. Start with helping them grow, and I can tell you that’s a journey that will be fun.”
A niche within a niche
High net worth individuals and families may have wealth as a common element. But there are different niches within the high-net-worth market, and an advisor who serves one of these niches can find rewards there.
Kristin Carleton is CEO of Special Abilities Network in Henrico, Va., where she provides financial advice to families of individuals who have special needs. She serves many high-net-worth clients and said that even though a family may have wealth, they are not immune from financial issues stemming from a loved one’s need for care.
Carleton has a son with a disability, and she noticed a number of advisors offering concierge family office services in several different niches, but no one was offering such services to special-needs families.
“Special needs families have larger needs than most families,” she said. “As I looked more into this, I found that the reason no one was offering this type of service to special needs families is that their needs are so complex. You really need a depth of understanding of everything from government benefits to private insurance to traditional financial planning.
“You have to understand you’re planning for three aspects of life: You’re planning to save for the family’s retirement, you’re planning for when the parents are retired and unable to care for themselves and the family member, and then you’re planning for what happens after the parents die and their family member outlives them.”
Carleton said her approach to serving high net worth special-needs families consists of three parts.
The first part is funding.
“It’s determining how much services will cost, how much you need, and where you will get the instruments and tools you need to provide that funding, protect it and be tax-efficient with it,” she said.
Many high net worth families want to be sure they have a guaranteed amount of funds set aside for the family member who has a disability, and they want those funds to be separate from their estate, she said. “So, I help them set that up and put protections in place for it.”
The second part is devising a legal strategy.
“The legal strategy is even more complex for high-net-worth families,” Carleton said. “One of the things that people often say to me is, ‘We have enough money; we don’t need government benefits.’ And my response always is, ‘The last thing you want is to not have access to a solution or a service that your child wants or needs.’
“A lot of services available in the disability world only take Medicaid as payment. So, you always want your family member to have access to Medicaid.”
Carleton said her clients rely on her to set up protections so that family members have access to what they need and that the best interests of the family member with a disability are at the forefront.
The third part is family support, making sure all family members are planned for and supported. Carleton said many of her clients have family members with disabilities that have gone undiagnosed because so much attention is paid to the outwardly disabled family member.
Life insurance has a role to play in all special-needs planning, she said.
“Life insurance is a great tool in special needs planning because it allows you to secure exactly the amount of funding you want,” she said. “And the death benefit comes tax free most of the time. It allows you to separate that money from your estate and allows you total control over the money. You know how much you’ll be able to leave for your family member.”
Some wealthy clients might think that because they are leaving their family member a house, their needs will be covered, Carleton said, but that is not the case.
“A lot of people say to me, ‘I’m not worried about paying for their care after I’m gone because I will leave them my house.’ And I say, ‘Have they ever lived alone before? Can they get themselves dressed? Do they know how to pay bills? Can they get their own breakfast, or can they shop for groceries?’ If they can’t do these things on their own, then they need supports and services, and that’s where life insurance can come in to pay for them.”
Carleton said there are two things her clients need most from her.
“One is peace of mind that when they’re no longer here, their loved one will be OK. And two is help in cutting through the chaos of their life today. If we can do both of those things, we’ve been incredibly successful.”
Advisors who want to serve a niche within the high-net-worth space should “find out what’s keeping them up at night and solve that problem,” she said. “If you can solve that problem, you will gain a loyal client for life.”
Life insurance plays a role
Life insurance and annuities have a role to play in helping high net worth clients protect their wealth. Clients in the upper income brackets have an even greater need for such coverage than the average consumer, said Ted Bernstein. Bernstein is the owner of Life Cycle Financial Planners in Boca Raton, Fla.
High net worth individuals “often have a lot of worth and not enough income,” Bernstein said, and that can especially be true in retirement.
Clients who became wealthy by accumulating assets during their working years may find themselves in retirement with a large retirement portfolio but a need to create an income stream. This is where annuities come in, Bernstein said.
“They might have millions of dollars in their retirement plans, and I encourage them to look at the value of an annuity in creating income,” he said.
Annuities can take some of the worry out of a wealthy client’s assets, Bernstein said. He used an example of a client who has a multimillion-dollar real estate portfolio, but that real estate is not producing sufficient income for them.
“With annuities creating income, the client doesn’t have to worry about their leverage position. They don’t have to worry about their assets performing. They don’t have to wonder what they’re going to do when they’re in their mid-80s or early 90s. Do they really want to be managing assets then?
“Life insurance is at the heart of the matter” in serving high net worth clients, Bernstein said.
“I think there’s a broader need for life insurance in the high net worth and ultra-high net worth markets,” he said. “The level of net worth has skyrocketed in the past 10 years. Does a person with $50 million in net worth need the death benefit? Do they need life insurance? The way I look at it is they’re buying liquidity. That clientele has a desire to preserve the assets they want to pass on to the next generation without dilution. They want that $50 million to end up in the hands of their children or in the hands of their trust without seeing millions of dollars go toward taxes.”
High net worth clients have a desire to preserve as much of their wealth in the most efficient way, which makes life insurance an attractive way to solve their concerns, Bernstein said.
“Let’s look at two types of clients. At one extreme is someone who has 100% liquidity. At the other extreme is someone whose wealth is all held in real estate or privately held business. The client with the real estate may find they have more of a classic need for the life insurance death benefit. But the client whose assets are mostly all in bonds, stocks and other liquid things may think there’s absolutely no need for life insurance. You can present it as: Do you want to spend $200,000 a year for $10 million in coverage or do you want to give millions to the government on your death?”
Life insurance “is the great equalizer” in serving high net worth clients, he said.
“It’s buying liquidity,” he said. “And liquidity is so often in short supply, and it’s needed at the worst time. Life insurance is the great thing that prevents a small business from having to be sold under duress. Real estate, the summer homes, all the assets that are passing from one generation to the next, are fraught with nothing but problems. Families fight because they can’t split a house in half. Life insurance solves all those things.”
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].
The man with the $50B plan — With Eugene Mitchell
Crafting financial success with time-tested tools — with OneAmerica Financial’s Scott Davison
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News