How Financial Advisors Work With Billionaires

Billionaires are in a class of their own when it comes to seeking financial planning advice. Financial advisors need to understand …

Billionaires are in a class of their own when it comes to seeking financial planning advice.

Financial advisers need to understand that billionaires aren’t just millionaires with three extra zeros added to their total assets; they require a more structured organization of professional advisers than even the millionaire class. This carefully selected executive forms a family office that provides the expertise to manage each of the specialist investments in the billionaire’s portfolio.

The role of managing billions for a client like $ 105 billion Warren Buffett and his fellow billionaires could hardly be taken on by a single adviser with financial and legal acumen the size of a superhero. Rather, it takes a group of advisers, each with specific expertise in finance and law and often handpicked by the billionaire.

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Characteristics of billionaire advisory teams

In a 2020 survey conducted by Northern Trust Asset Management and presented at the Charles Schwab Impact conference on October 19, the average size of an advisory firm among a cohort of billionaire families was 17 employees. The median net worth of billionaire families surveyed was $ 2.6 billion.

For a company like Northern Trust, with an office that manages over $ 135 billion for affluent families, it’s important that financial advisors know their place in the billionaire family ecosystem and understand the broader set of issues facing them. they are faced. .

“The more we know, the better we understand this ecosystem, the more we will be able to add value as we bring them investment ideas and an understanding of things like asset allocation and how it relates to. the location of assets, ”said Lincoln Ellis, senior investment strategist for global family office and private equity services for Northern Trust, who spoke at the Impact conference.

[Read: How Financial Advisors Should Charge Wealthy Clients]

Opportunities for Financial Advisors

One revelation in the Northern Trust survey is that 41% of billionaire family offices do not have an investment manager on their staff. “This is where we have the opportunity, as advisors, to become partners and thought leaders with these billionaire families and more and help them think about how they should build their portfolios. “said Ellis.

Mike Alves, certified financial planner and managing director of Vida Private Wealth in Pasadena, Calif., Says some family offices may intentionally do without an investment manager. “A CIO will help a family office develop and implement a good investment policy statement. Some of these billionaires are afraid of losing that control because they think an outside CIO will come and change their policies and their investments. This is the billionaire’s money; he decides, ”says Alves.

[Read: What Financial Advisors Can Learn From the Bill and Melinda Gates Divorce.]

What billionaires look for in a financial advisor

Of course, not all billionaire families are structured the same. Investment goals, continued growth and wealth preservation vary widely, as do the teams of advisors hired to manage their portfolios. Due to the size of their portfolios, billionaires are interested in long-term investments, such as buying businesses and large real estate companies, and less in cash and short-term investments such as stocks, bonds and other investments that react to rising interest rates. rate or periods of inflation.

“Billionaires don’t invest in things like buying a home, college, or retirement; they invest in endowments with an investment mandate to stay invested and grow assets over time while using a portion of the income for their lifestyle, says Matt Chancey, a Florida-based certified financial planner, who advises billionaire clients. “Billionaires have access to products that high net worth clients and millionaires do not have, such as private equity, venture capital, private development and large real estate companies.”

One example includes access to equity and debt for mid-sized companies that have high growth rates and may be positioned for acquisition by a publicly traded company. “Returns on equity or private market debt can offer exponentially more benefits than public market investments, but you have to be a qualified buyer to access those markets,” Chancey said.

To facilitate these transactions, billionaires are constantly looking for the best advisers in their respective fields. “It’s about having the right people for the right job,” says Alves. “That’s why they’re billionaires; they know who the right people are, from estate planning lawyers and (chartered accountants), to brokers, private equity advisers and hedge fund managers, ”he adds. And the more money you have, the better the team you get.

Chancey notes that some millionaire families are consolidating their assets to form a multi-family office, in part to hire the best advisors money can buy. “At $ 500 million, you can get some really good professionals to work for you, but when you come across billions of family office companies, you have access to the real experts,” he says.

And the bigger you get, the more complex your investments will be. “Exceptional wealth requires exceptional advice,” says Jim Shagawat, Certified Financial Planner and Partner Advisor for wealth management firm AdvicePeriod. “Estate planning, for example, becomes a difficult task because billionaires need unique arrangements. You are creating a strategy that will leave a legacy for future generations while keeping Uncle Sam out, ”he said.

Financial specialists need billionaires

Speaking of Uncle Sam, taxes often have the biggest impact on a billionaire’s wealth. Shagawat notes that billionaires need exceptional tax advisers who are familiar with a variety of potential tax issues, as well as the official tax code, regulations and guidelines of the IRS. Expertise in concentrated holdings and diversification strategies is also required, whether for instruments such as OTC derivatives for estate planning, futures, tunnels or exchange traded funds.

Another big factor for the billionaire client is private trust companies. “Anyone who’s willing to take the risk of becoming a trustee of a wealthy family has no idea what they’re getting into, and you don’t want that person to act as a trustee,” Shagawat says. “You have to work with the billionaire client to establish a private trust company to maintain consistency and continuity. This is the most effective technique for ensuring good generational planning and perfect expertise.

It is also up to advisers to have in-depth knowledge of personalized services. “To be able to assist in the acquisition, restoration and coordination of assets such as private planes. Help the billionaire negotiate the acquisition of his yacht, which includes negotiating prices and setting up management, ”Shagawat said. Plus, get involved in high-value real estate deals, he adds.

Billionaires will often want full family office services in addition to actionable things like day-to-day invoice processing, vendor verification, Form 1099 reporting, and wire transfer management. Reports on finances and financial activity should be monitored, including banking transactions. Finally, Shagawat says billionaires will need counselors for cash flow analysis and bookkeeping, such as keeping their checking, savings and money market accounts.

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