Advisors need to be patient with the newly wealthy

FWR Staff

5 December 2007

Those who come into their wealth suddenly are sometimes beset by anxieties. Wealth advisors might be better off if they don't roll their eyes, clench their teeth or slam down telephone receivers when working with frustrating clients. This stunning insight comes from Dow Jones, a reliable fount of common sense about wealth management.

But beneath its blinding obviousness, the Dow Jones article makes a fair point: advisors need to be patient with clients who -- for whatever reason -- are just getting used to the idea being well off, and be prepared for the role of sounding board as clients work through their uncertainties and formulate realistic goals. Understanding that the newly wealthy are frequently confused by the implications of their wealth can help advisors communicate better, customize their services and explore options that would otherwise perhaps stay untapped. And these things do nothing to hurt advisor's efforts to become the primary financial and investment consultant to his best clients.

Middle class

Sara Hamilton, CEO of Family Office Exchange, a Chicago-based research and education resource for ultra-wealthy families, makes the point about the uncertainties that beset the newly affluent. "A lot of people don't know how they feel about being wealthy," she told Dow Jones last month. "It takes a while to get comfortable with being wealthy and to understand the implications."

Holly Isdale, head of wealth advisory at Lehman Brothers, told how one customer, a former business owner, felt pressured to make rapid-fire investment decisions. " didn't realize she needed time to get used to owning a portfolio, not a business."

Americans who are viewed as high-net-worth spent their formative years -- and in many cases spent the bulk of their adult lives -- in the middle class. Around 80% of respondents to a 2006 Harrison Group survey of individuals whose annual incomes came to at least $125,000 were reared in middle-income households and 70% of them had been "wealthy" for less than 15 years.

A third of the Harrison poll respondents ran their own business, another third were corporate or at any rate business managers. Only 4% said they'd inherited their money.

Takes time

The point here is that persuading clients who aren't used to having their money managed to implement specific asset allocations may take time -- anywhere from two to four years, according to sources cited by Dow Jones. This is particularly true when it comes to esoteric or riskier alternatives, since newly wealthy clients are typically conservative investors.

In addition, though many of the newly wealthy are canny businessmen and women, they're often not sophisticated when it comes to financial concepts and terminology. So advisors should avoid jargon and stick to plain English to get their messages across.

The newly wealthy seem to pass through stages from feeling all powerful to fretting about the added complications associated with wealth ownership to acceptance of their new status and disciplined behavior. Of course there are variations at every one of these stages, depending on the personality and circumstances of the client.

"Coming into money has challenges, concerns, anxieties," Stephen Goldbart, a Kentfield, Calif.-based psychologist who works with the newly wealthy, told Dow Jones. "The major message we give advisors is, 'Don't worry about solutions. Get into an education and learning mode.'" -FWR

Purchase reproduction rights to this article.