Billionaires are in a class of their own when it comes to seeking financial planning advice. They aren’t just millionaires with three extra zeros.
Members of the 10-digit club require a more structured organization of professional advisors. Managing the wealth of Elon Musk, who is worth about $216 billion, isn’t something one advisor could shoulder alone. Instead, billionaires work with carefully selected cadres of financial and legal experts who form family offices that manage each of the specialized investments in their bosses’ portfolios.
“Advisors are often selected to complement and coordinate with the internal team or to provide an independent set of eyes and recommendations,” says Dina Lee, president of The Colony Group Family Office and managing director of The Colony Group’s metro New York offices.
It takes a team of advisors, each with specific expertise in finance and law and often hand-picked by the client, to manage a billionaire’s portfolio. Here are some aspects of working with billionaires that financial advisors should know:
— Working with billionaires.
— What billionaires look for in a financial advisor.
— Financial specialties for billionaires.
Working With Billionaires
Extraordinary wealth comes with extraordinary demands, Lee says. Billionaires often require 24/7 attention. They need to be your priority as an advisor and, of course, expect full discretion.
She tells advisors to start the relationship by setting mutual expectations and outlining your arrangement in writing.
“Understand that the power in the relationship is never going to be balanced,” she says. The billionaire still holds the majority of the power. “When it works, it’s a wonderful collaboration. When it doesn’t, you are out.”
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 holdings, billionaires focus on long-term investments — such as buying businesses and large real estate ventures — and less on liquidity and short-term investments such as stocks, bonds and other investments that react to rising interest rates or inflationary periods.
What Billionaires Look for in a Financial Advisor
Billionaires have different investment goals than other clients. They aren’t investing to save up for home purchases or to put their kids through college. They invest to produce income for their lifestyles, which likely eclipse those of most Americans. To do this, they use assets that even millionaires can’t access, such as exclusive levels of private equity, venture capital and larger 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. Such investments can provide considerably higher upside than public market investments, but they require investors to meet certain criteria.
And the more wealth you acquire, the more complex your investments become. “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.
To facilitate these deals, billionaires are constantly looking for the best advisors in their respective fields.
Financial Specialties for Billionaires
Taxes often have the greatest effect 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.
Lee tells advisors who want to work with billionaires to perfect their independent thinking. When you get an unusual request — and you’re sure to get more than one — try to shift your mindset from a blanket “no” to “how.” That is, how could you make the request happen?
Advisors to billionaires need to be organized, action oriented and in sync with the goals of the family members, Lee says. You need to “be able to command respect and help the family make difficult decisions.”
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Update 10/13/22: This story was published at an earlier date and has been updated with new information.