Estate planning

The three types of UHNW clients and how to serve them


There’s rarely a quiet time in the legal and financial professions, but it’s clear that the past several years have been some of the busiest in memory for professionals focused on high-level service. Very high net worth clientsaccording David Janepartner and team leader of the US Weathers practice.

This is due in part to a confluence of high-level organizational and economic factors, says Jin, but also to the fact that Family offices It is now estimated that they oversee assets worth tens of trillions of dollars globally.

Simply put, there is a lot of work to be done when it comes to managing such a huge amount of accumulated wealth in an efficient and compliant manner – especially when a client has relationships with multiple countries and different jurisdictions to deal with.

And as Jin confirmed on a recent call with ThinkAdvisor, in addition to supporting the huge volume of investment activities that family offices carry out today, advisors and lawyers are also used to provide a wide range of services.

Jin explains that this applies both to single-family offices that focus on the wealth needs of a single family, and to emerging multi-family offices that provide a growing range of specialized services.

Ultimately, it’s a challenging but rewarding time working in this area of ​​the law, Jain says, and he encourages financial advisors with high-net-worth and ultra-high-net-worth clients to be aware of emerging trends.

Those who fail to provide responsive and cutting edge services to their clients – and those who fail to keep their clients on a solid legal footing – risk losing this coveted business.

Thinkadvisor: Do you think a lot of your clients are relatively similar in terms of the challenges and opportunities they face?

David Gwynn: I would say that they share some general characteristics, but they are divided into several different groups.

First, there is a group of clients who still have their primary wealth tied to a going concern. They are running a business and dealing with financial investments on the side, which is challenging for them.

The second group of clients has at some point shifted from their wealth primarily confined to operating companies to being held primarily as financial assets. This obviously means that they have a different set of issues and needs.

And then we also have what we call the founders’ practice, if you will. One of the things that is showing up a lot out there, with the markets freezing up a bit, is looking for ways to create liquidity.

These are people who might have expected to actually go public and sell their shares in their company to make their money, but with that kind of activity slowing a bit with the broader economy, their support is about trying to find ways to create liquidity.

Is it fair to say that providing liquidity to this group of founders at this current moment is relatively difficult, given some of the anxiety and uncertainty we have seen with lending in this economic environment?

Well, it’s interesting, because I think in this area it’s hard to provide liquidity, in general, but there are also financial brokers out there that are focused on servicing this market, and they’ve been more active than you might expect.

But yeah, going out and finding a private equity buyer for a closely owned company, for example, is harder today, and so is getting a regular bank loan against your shares. This is also probably more difficult now, yeah.

However, there is still a dynamic liquidity market that we can help our clients take advantage of, and there is always the ability to close deals within a particular company. For example, if one of the founders wants to create some liquidity, you’ll often find another investor in the company who wants to increase his stake.

Going back to the other two customer groups that you mentioned, what are the challenges faced by the operator’s customers?

Above all, they need help and support to maintain their growing personal fortunes, so they can stay focused on the success of their core business.

Another thing we’re trying to advise these clients on is to create a kind of firewall around their standalone assets versus their operating company. Doing so may become more difficult as their independent assets grow and require more time and resources to manage them effectively.

We have certainly had experience with new clients coming to us, seeing that they have been effectively running their family office out of their operating company. This is definitely not a best practice.

If you have other shareholders, in particular, this could create a conflict of interest, and if you do eventually go to sell the company, try to explain to the acquirer which expenses and things were personal and which ones were from the company – get all explained they could be real trouble.

As much as possible, we try to help our customers keep these worlds as separate as possible. Sometimes it’s harder, other times it doesn’t make much difference, but it’s always important to think about it.

Not to go into too much detail, but are there some best practices you can point out here?

Well, the real key is to avoid running personal expenses through the company, to begin with.

It is not always possible to have completely different employees, so we will often see that the accountant and lawyer for the company are also the accountant and lawyer for the family, for example. This is a good thing, but it can cause problems if you don’t work to separate the two worlds.

Again, the key thing is how you manage your expenses and how you keep your personal wealth retention structures free from the operating company.

You really shouldn’t place your personal investment structures under the supervision of the operating company. If you end up selling the company or bringing in another investor, it can be difficult to relax and get rid of all that stuff.

For the other group of clients, those who have had a liquidity event and are managing their wealth through a family office, what issues do they face?

Given the nature of my practice, many of the challenges I work on in this group are similar. It is about trying to instil professional compliance practices into the family office environment, although different clients place a different amount of emphasis on this.

Frankly, some clients are so concerned with having the best practice style compliance policies and procedures, that they will organize their behavior primarily around what a registered investment advisor needs to do. They run their family office with a full set of policies and procedures, which is great.

Other customers are less focused on this, so we need to spend a fair amount of time helping them maintain order and helping them see the importance of the more mundane day-to-day compliance work.

One positive trend we’re seeing in this group is that more family offices are looking to team up to pursue what we would essentially call club transactions. Here, someone will be in charge of finding and organizing a big deal, and will invite his friends in the family office to take part in the actual investment.

This is an emerging opportunity that I would like to highlight to your readers, and we are doing a lot of work in this area for both large investors and those joining attractive deals.

Do you agree with other attorneys who see the next few years as a trying time for the legal resources of high-net-worth clients? There are potentially big changes in property taxes on the horizon, for example, and there are concerns that clients may not be able to access the expertise they need in a timely and reliable manner. Does this concern you?

yes it is. Tax and estates are not my personal area of ​​practice, but I’ve been here at Withers long enough to see how anticipated and actual changes to the tax code can cause a real rush.

No matter what specific area we’re talking about, it’s important that you do your planning well in advance of any major change so you can make sure you get the support you need. Because yes, it is very likely that people will drown and not be able to do new work.

The other thing that can happen is that you’re trying to get something done quickly before there’s a big change, and so you don’t have time to adequately think about what will actually be in the best interest of the client in the long run. Term – taking into account all other considerations that come into play.

There are ways that something can seem like a good idea, because you’re looking at a fixed policy deadline, but managing that kind of wealth can be so complex that you can do yourself real harm in the long run by rushing into a decision.

That’s why financial advisors and legal resources need to work together. It’s all well and good to create some kind of legal structure or investment plan, but if that structure doesn’t actually advance the client’s financial goals, it’s not worth much.

What other trends should our readers be aware of when it comes to family office operations and compliance issues?

One important thing to conclude is the growing issues around privacy and cyber security.

Again, this isn’t exactly my practice area, but my colleagues at Weathers are seeing more and more interest in this area, especially as data privacy laws spread globally. This is not only a challenge for family offices, but for all operating and family-owned businesses.

I think many people still fail to appreciate the dangers and risks that exist and what is required of an organization to maintain its integrity. In my own world, this is seen most in the context of mergers and acquisitions, where the buyer asks what the seller did in terms of cybersecurity.

Pictured: David Gein


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