Choosing The Right Adviser For Wealthy Individuals
21 Sep 2016
“The worst outcome is when there’s a mismatch between the skills and capability of the adviser and the needs and issues the client faces. If the client has amassed a certain amount of wealth, and the adviser is used to clients who are at risk of not having enough money in retirement, then the sort of recommendations that adviser is going to make to a high-net worth client are likely to be inappropriate.”
Not all financial advisers are created equal. While a suburban adviser might be totally appropriate for most Australians, those with somewhat more wealth need to explore more bespoke advice options such as those delivered by private banks or wealth management firms.
Developing a long-term relationship with a financial adviser – whatever flavour – can often deliver better returns, and help protect your wealth, for future generations.
CEO of Koda Capital Paul Heath says what’s key is for the client to choose an adviser based on the latter’s expertise in the types of issues the client faces.
“The worst outcome is when there’s a mismatch between the skills and capability of the adviser and the needs and issues the client faces. If the client has amassed a certain amount of wealth, and the adviser is used to clients who are at risk of not having enough money in retirement, then the sort of recommendations that adviser is going to make to a high-net worth client are likely to be inappropriate,” says Heath.
“This client needs an adviser who is used to dealing with multi-generational portfolio construction as opposed to someone whose specialty might be in helping clients who don’t have enough for retirement.”
Anthony Kapetanovic, managing director of Akambo Private Wealth, says traditional private bank models do provide high levels of advice and service.
“That comes primarily from the ability to access global markets and opportunities that are perhaps only available to sophisticated and wholesale investors,” he says.
“But your general financial planner has the ability to provide high levels of financial advice and can certainly operate in the high net worth space, providing they’ve got the experience and the skills and that their licensee gives them open architecture so that the client’s interests are paramount.”
It’s easy to assume private bank clients are getting better returns than average mum-and-dad investors because they have access to investment opportunities only presented to wealthy clients. But that’s not necessarily the case.
Heath says returns are less a function of the service model, and more a function of a good adviser sitting down with a client and working out the right return given the risk tolerance the client has.
“A family that has accumulated a significant amount of wealth might be very happy to accept single-digit rates of return on the proviso that only a certain level of risk is being taken to deliver those returns,” he says.
Inappropriate level of risk
“Conversely, another family might be getting excellent returns, but they’re taking inappropriate levels of risk for their circumstances. That’s why the adviser becomes so important, because their role is to really understand a client’s tolerance for risk.”
Simon Swanson, the managing director of ClearView Wealth, agrees the return is not so much related to the type of adviser you choose as to the risk profile of the client.
“A high net worth client will have a slightly higher risk profile and therefore in the long run gets slightly higher returns. But it depends on the client. If you don’t have much money, you shouldn’t be betting the farm,” he says.
Kapetanovic agrees the type of adviser is not the main variable that impacts returns. “It’s common sense the more experienced adviser that has been dealing with high net worth clients for many years and has high levels of expertise in investment management is likely to deliver a better outcome over time for a client.
“But we don’t tend to measure a client’s outcomes purely in investment returns. It’s all about how the advice and strategy create greater wealth for a client overall, whether that be through tax management strategies, superannuation, estate planning or pure asset management. The client can generate wealth increases in many ways.”
As for trends in high net worth advice, one of the main ones is planning for the intergenerational transfer of wealth.
“Over the next 15 years, a significant proportion of the wealth in Australia is going to be transitioned from one generation to another. Lots of people talk about intergenerational wealth, but there are probably three things within that that are really important,” says Heath.
The first is the gender issue. “The generation that currently controls most of the investable wealth in Australia is dominated by males. Whereas we know that 50 per cent of the recipients of this wealth over the next 15 years are going to be female. Financial advice is a very male-dominated industry, and I think facing the issues of gender diversity for the industry are critical if we are going to deal with that trend.”
Another major turning point is the rise of digital technologies in financial advice. “The generation that will receive this wealth are far more comfortable with technology. They are comfortable shopping and gathering news and intelligence online. So they want a different way of interfacing with their advisers. This means the way advisers build relationships with clients is going to need to cater to this big change in inter-generational wealth, because the demands of the client are going to be different.”
Heath says there has also been a rise in demand among wealthy investors for advice around philanthropy. “We are seeing a significant increase in professionalism of not-for-profit organisations that are delivering services in the social sector, as governments pull out of that sector. Charities must also become better organised around the funds they have for delivering social services. We think there’s a role for advice and high net worth investors to play in that.”
Commensurately, there has also been a significant rise in the use of vehicles like private ancillary funds or public ancillary funds for individuals who have been successful and want to put something back into the communities in which they work.
Says Heath: “If you look at those trends, good wealth advisers need to have skills and capabilities to deal with intergenerational wealth and the emergence of philanthropy as an important issue in the minds of the client.”
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