Job one for advisors when it comes to high-net-worth investors? That’s easy: know that wealth is not all that motivates that elite investor class.
A recent U.S. Trust study gives insight into the inner workings of HNW investors. For a fulfilling life, they list their health, wealth, family, philanthropy and impact investing.
According to the 2016 study, 98 percent of HNW investors claim “that the most valuable asset they have is their health.” Despite that sentiment, few participants had plans to deal with unexpected illness and healthcare costs.
HNW investors also want to improve their health care financial planning, but advisors need to be diplomatic in broaching the subject.
“Successful people tend to need to feel in control on many levels, and sometimes they haven’t stopped to think about how health, for example, might cause them to lose control,” said Joshua Wilson, a partner and chief investment officer at WorthPointe Wealth Management. “Framing your dialogue along these lines can help an investor understand a need behind a product or solution.”
The next stop on the motivation train is wealth, both amassing it and protecting it, said John Ocwieja, a personal and business financial specialist with Hoopis Group.
“Advisors need to think and speak to HNW investors on their level,” Ocwieja said. “The person who has amassed wealth understands risk and loss. What he or she wants is someone who understands the way they understand, and can speak to their sensibilities. HNW individuals buy on a cost/benefit analysis, knowing that everything has a cost, and that cost is worthwhile when and only when it provides benefits far greater than the cost.”
Once they have those “cost rewards” realized, they need it protected, especially when it comes to insurance needs. There are a few places where HNW investors tend to fall short with insurance, said Peggy Arledge, a client advisor at CBIZ Insurance Services.
“Travel coverage, insurance against injury or wrongful termination suits from their private staff, and personal excess liability insurance are the usual suspects when it comes to being underinsured, she said. “For those that have a high net worth, you can’t rely on the successes you’ve enjoyed to date to carry you through a storm.”
The U.S. Trust study concludes that nothing ranks higher than family. Three-fourths of respondents want to leave substantial wealth to future generations – yet only 20 percent feel confident in their children’s ability to handle the inheritance. For advisors, that’s an opportunity to help HNW clients devise a financial legacy plan, and teach their children about money.
Another big issue is charitable giving. According to the study, 86 percent claim that giving back is important to them, with half of respondents saying they donate because they want to support what matters. It doesn’t stop at philanthropy.
“More and more frequently our high-net-worth investors are asking about what types of companies and causes their investments are supporting,” said Pedro Silva, a financial advisor with Provo Financial Services. “They are increasingly interested in having it be somewhere that lines up with their values and beliefs.”
You can screen investments for factors like environmental impact, animal testing, and sustainability, he added.
Another 75 percent of respondents claim if they lost their wealth, their purpose in life would remain unchanged. For many, financial security means freedom. Wealth is an empowering tool, but it’s ultimately just a tool. It’s a door-opener.
The lesson for advisors when it comes to knowing what wealthy clients really want? Treat that door-opener as the vehicle it is, and you can help HNW investors pursue their real passions.
Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at email@example.com.
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