Wealth managers focus on advancing the financial interests of their clients, which often includes consultation around core areas of expertise, such as creating tax-exempt wealth, asset management, investment advising and financial planning. Armed with this information, the client and wealth manager determine the product and service mix that will best advance his or her financial interests.
However, there are other factors at play that often, more subtly and indirectly, influence a client’s net worth. Consider the following facts:
- High net worth clients are frequently targeted in stalkings, abductions, robberies and lawsuits.
- A high net worth client’s loss potential is far greater than the average policyholder’s and standard insurance policy limits.
- Traditional insurance products don’t cover threats to future earning potential, which is often a core component of financial planning strategies.
- Complex exposures and liabilities are difficult to insure. They require custom insurance products and expert consultation.
Wealth managers naturally advise against risky options for their clients. They conduct due diligence on investment deals, and proactively offset risk with a well-balanced portfolio. But risk factors and lifestyles increase in complexity proportionally with wealth and fame. And while wealth managers should provide holistic consultation to their clients, complex risk management often falls outside their wheelhouse of expertise.
In some cases, these risk factors have the potential to cause devastating financial, emotional and reputational loss. You need look no further than the celebrity who racked up too much debt, the billionaire oil magnate who overpromised shareholders, or the athlete who picked a self-serving advising team.
Joel Koenig said it well: "Today’s complex field of wealth planning embodies many diverse disciplines: law, accounting, finance, insurance, asset protection, family wealth dynamics, family therapy, business succession, philanthropy, psychology, and of course, wealth management."
As Koenig suggests, a heavy responsibility falls on the shoulders of wealth managers to advocate on behalf of their clients. I would argue, heavier than a single professional should bear. Realistically, high net worth, ultra high net worth and celebrity clientele should have an advisory team to help them make the best decisions.
A risk management consultant is an important role at this table, and provides a unique blend of insurance expertise and familiarity with legal, tax, human resources, safety and security considerations. Specifically, risk management includes safety and loss prevention consultation, to prevent or reduce the severity of loss. Thus, the risk manager allows the client to have a 360-degree view of opportunities and threats.
Together, wealth management, risk management, legal counsel and business managers can provide a variety of perspectives. A good advisory team eliminates blindspots and helps the client make highly informed and balanced decisions about the most important things in her life: Career, reputation, family, lifestyle and legacy. They also provide natural checks and balances, which can guard against misguided advising, conflicts of interest or self-serving intentions.
The client is most successful when you help them maximize growth and minimize losses in all areas of life. To do this well, consider the role of risk management, and watch all boats rise as a result.
Parker Beauchamp serves as CEO and President of INGUARD. His personal portfolio focuses on clientele who require complex insurance and risk management strategies.
