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Retirement Planning > Retirement Investing

4 'Tipping Points' for Wealthy Clients (& What Advisors Can Do to Help)

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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.

At other times, it could be that they didn’t have experience serving many childless clients, and were unable to customize their service accordingly.

Whatever the case, serving couples such as this will likely require a deep knowledge of charitable giving strategies or perhaps Socially Responsible Investment (SRI) or Environmental, Social, and Governance (ESG) investing expertise, since such clients, more so than most, tend to want to align their values with their investments.

Meanwhile, these couples might also want to give assets to close friends or act as an investor in the start-up of an acquaintance. Still others may wish to maintain a lavish lifestyle during retirement.

4. No LTC

Older high-net-worth investors without the proper long-term-care insurance could also be considered tipping point clients. The biggest risk to your wealth is your health. Without protections, medical issues can destroy a client’s retirement and estate plans.

Far too often, clients get preoccupied with issues that they believe will influence their life in retirement, like limiting taxes and producing income, and forget about what it would mean if they were forced to live in a nursing home.

It’s possible that the client rejected a previous advisor’s suggestion to get long-term-care insurance. (It could be, however, that the concept was never mentioned at all). The client also could have inadequate employer-sponsored LTC coverage.

Either way, you need to be honest with these clients, as unforeseen medical expenses often lead to financial ruin. Every client needs to know what the fallout could be were they not to protect themselves.

No matter the type of tipping point client you encounter, the conversations you have with them about their history and desired future are the best ways to overcome any doubts so you can deliver a strategy that keeps them from falling in the wrong direction.


Dryden Pence is Chief Investment Officer of Pence Wealth Management, which is based in Newport Beach, California.


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