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December 10, 2018 at 04:18 PM
To most, a family with a net worth exceeding $1 million is, if not rich, doing very well. However, for some within this group, it’s possible that without a few financial planning tweaks, they could nonetheless be in peril.
In most cases for these clients they are at a “tipping point” — where one or two correct moves can make all the difference. The proper action at the proper time can define the tipping point between meaningful success and marginal failure.
A good advisor can devise successful strategies to contend with even the most complex financial situations. But helping tipping point clients is less about expertise and more about addressing skepticism and gaining trust — especially if they have received bad or insufficient advice in the past.
Exploring the four most common types of tipping point clients can shed light on how to win them over.
1. Family Business
One type of client is families operating multi-generational businesses, particularly ones that have fired their advisor. Families can break with an advisor for many reasons, but among the most common are a lack of skill or experience; an inability to consistently meet with and get to know key decision-makers in the family; and favoring the patriarch at the expense of his wife and children.
Winning over these families usually means helping them answer the following questions:
- Who should assume control of the business, and when?
- How do we equalize key person buy/sell authority with family members involved in the business versus those who are not?
- What is the plan to pass on business-related assets in the most tax-efficient manner?
- Is the business properly structured as a C/S Corp or LLC?
- Is there a retirement plan that makes sense for both the business and its employees?
2. Concentration Risk
Another example is a family that has much of its wealth tied up in an investment that cannot easily withstand shifting market conditions. For instance, some variable annuities work best when rates are low, but with the Fed tightening, the value of those vehicles will waver, so anyone over-reliant on them could suffer the consequences.
The stock of a once-dominant brick-and-mortar retailer would pose similar challenges, thanks to the rise of e-commerce. Even holding mutual funds or ETFs present concentration risk.
In today’s environment, where tariffs are becoming commonplace, any fund that is overweight to China is likely to experience headwinds. Tipping point clients in this group not only need to know how evolving market conditions can expose them to risks but how to mitigate them.
3. No Children
Tipping point clients can also be wealthy, childless couples for whom leaving a legacy is their most overarching goal, even as a previous advisor may not have understood that reality. This could have happened because the advisor didn’t appreciate the couple’s long-term objectives, perhaps assuming children were inevitable.
