Many of our reps deal with “High Net Worth Investors.” High-net-worth investors face investment challenges that some would consider unique to their financial status. The fundamental tenets of investing apply equally to them as with any other investor, but the affluent investor needs to be mindful of issues that typically arise only from substantial wealth.
Let’s examine a few of these.
Being Too Conservative — When an individual has more assets than they think they’ll ever spend, there can be a tendency toward conservative investment. This may result in lower long-term returns that may shortchange the impact of bequests to charities or the wealth that will transfer to the next generation.
Collectibles — The affluent have a tendency to invest in their passions, and many collectibles have performed well over the years. However, one common mistake is not keeping up-to-date appraisals on record, which may have adverse consequences with regard to estate liquidity and taxes.¹
Concentrated Equity — Some senior executives accumulate large stock positions in the company that employs them.² This creates a unique risk and potentially can be managed in several ways.
DIY Mentality — Some wealthy investors have achieved a high level of success in their careers in large measure due to their intelligence, hard work, and self-confidence. This very success often carries over to the belief that building or managing successful enterprises is not dissimilar to managing great wealth. In fact, it can be quite different, requiring a whole different body of knowledge and experience.
Too Many Advisors — Affluent investors often place their investment assets with multiple advisors thinking that better results will arise from that. However, many of the key needs for larger portfolios such as risk management and tax efficiency will suffer, since there is no overarching view into the larger picture of an individual’s entire portfolio. The independent actions by separate advisors, all with the best of intentions, may actually work to sub-optimal outcomes.
With increasing wealth come even more unique challenges beyond those covered by this discussion. Consequently, if you are dealing with specific challenges with affluent investors, we encouraged you to call us for guidance that may be best suited for your clients particular needs and circumstances.