How Financial Advisors Work With Billionaires

Billionaires are in a class of their own when it comes to seeking financial planning advice.

Financial advisors should understand that billionaires aren’t just millionaires with three additional zeros added to their total assets; they require a more structured organization of professional advisors than even the millionaire class. This carefully selected cadre forms a family office that provides the expertise to manage each of the specialized investments in the billionaire’s portfolio.

The role of managing billions for a client like Warren Buffett, who’s worth $105 billion, and his fellow billionaires could hardly be shouldered by just one advisor with superhero-size financial and legal acumen. Rather, it takes a group of advisors, each with specific expertise in finance and law and often hand-picked by the billionaire.

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Characteristics of Billionaires’ Advisory Teams

In a 2020 survey conducted by Northern Trust Asset Management and presented at the Charles Schwab Impact conference Oct. 19, the average size of an advisory office among a cohort of billionaire families was 17 employees. The median net worth of the billionaire families surveyed was $2.6 billion.

For a firm such as Northern Trust, with an office that manages more than $135 billion for well-heeled families, it’s important for financial advisors to know their place in the billionaire families’ ecosystem and to understand the broader set of issues they’re facing.

“The more well-versed we are, the better we understand this ecosystem, the more value we’ll be able to bring to the table as we bring them investment ideas and an understanding of things like asset allocation and its relationship to asset location,” says Lincoln Ellis, senior investment strategist of global family office and private investment office services for Northern Trust, who spoke at the Impact conference.

[Read: How Financial Advisors Should Charge Wealthy Clients]

Opportunities for Financial Advisors

A revelation in the Northern Trust survey is that 41% of billionaire family offices don’t have a chief investment officer on staff. “This is the place where the opportunity is for us as advisors to become partners and thought leaders with these billionaire-plus families and help them think about ways in which they should be building their portfolios,” Ellis says.

Mike Alves, a certified financial planner and managing director of Vida Private Wealth in Pasadena, California, says some family offices may do without a chief investment officer intentionally. “A CIO will help a family office develop a good investment policy statement and implement it. Some of those billionaires are afraid of losing that control because they think an outside CIO will come in and change their policy and investments. It’s the billionaire’s money; he calls the shots,” Alves says.

[Read: What Financial Advisors Can Learn From the Bill and Melinda Gates Divorce.]

What Billionaires Look for in a Financial Advisor

Of course, not all billionaire families are structured equally. Investment goals, pursuit of growth and preservation of wealth vary wildly, and so do the teams of advisors hired to manage their portfolios. Because of the sheer size of their portfolios, billionaires are interested in long-term investments, such as buying businesses and large real estate ventures, and less in liquidity and short-term investments such as stocks, bonds and other investments that react to rising interest rates or periods of inflation.

“Billionaires don’t invest for events such as buying a home, going to college or retirement; they invest in such things as endowments with an investment mandate to stay invested and grow the assets over time while using some of the income for their lifestyle, says Matt Chancey, a certified financial planner based in Florida, who advises billionaire clients. “Billionaires have access to products that high-net-worth clients and millionaires don’t, such as private equity, venture capital, private development and large real estate ventures.”

One example includes access to the equity and debt of midsize businesses that have high growth rates and can be positioned to be acquired by a publicly traded company. “The returns of private market equity or debt can offer exponentially more upside than public market investments, but you have to be a qualified purchaser to access these markets,” Chancey says.

To facilitate these deals, billionaires are constantly looking for the best advisors in their respective fields. “It’s all about having the right people for the right job,” Alves says. “That’s why they’re billionaires; they know who the right people are, from estate-planning attorneys and (certified public accountants), to brokers, private equity advisors and hedge fund managers,” he adds. And the more money you have, the better the team you get.

Chancey notes that some millionaire families consolidate their assets to form one multifamily office, in part to hire the best advisors money can buy. “At $500 million, you can get really good professionals to work for you, but when you cross over multibillion family office businesses, you have access to the true experts,” he says.

And the bigger you get, the more complex your investments will be. “Exceptional wealth necessitates exceptional advice,” says Jim Shagawat, a certified financial planner and partner advisor for wealth management firm AdvicePeriod. “Estate planning, for example, becomes a difficult task because billionaires require unique arrangements. You’re creating a strategy that will leave a legacy for future generations while keeping Uncle Sam out of it,” he says.

Financial Specialists Billionaires Require

Speaking of Uncle Sam, taxes often have the greatest impact on a billionaire’s wealth. Shagawat notes that billionaires need exceptional tax advisors who are familiar with a variety of potential tax issues, as well as the IRS tax code, regulations and official guidance. Expertise in concentrated holdings and diversification strategies is also needed, be it for such instruments as over-the-counter derivatives for estate planning, forwards, collars or exchange-traded funds.

Another major factor for the billionaire client is private trust companies. “Anyone prepared to incur the risk of serving as a trustee for a wealthy family has no idea what they’re getting themselves into, and you don’t want that person acting as your fiduciary,” Shagawat says. “You must work with the billionaire client to establish a private trust corporation to maintain consistency and continuity. That’s the most effective technique of ensuring sound generational planning and perfect expertise.”

It also behooves advisors to have deep knowledge of personalized services. “Be able to assist with the acquisition, restoration and coordination of such assets as private aircraft. Help the billionaire create negotiations for the acquisition of their yacht, which includes negotiating pricing and setting up management,” Shagawat says. What’s more, be involved in high-value real estate deals, he adds.

Billionaires will often want full family office services in addition to the actionable items such as daily bill-pay processing, vendor verification, form 1099 reporting and handling of wire transfers. Reporting on finances and financial activity need to be monitored, including bank account transactions. Finally, Shagawat says that billionaires will need advisors for cash-flow analysis and bookkeeping, such as maintaining their checking, savings and money market accounts.

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How Financial Advisors Work With Billionaires originally appeared on usnews.com

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