Goals and needs of high net worth clients are different and one must understand that in order to cater to clients with such needs.
Here are some points advisors must remember while interacting with HNIs:
Build Trust
IFA should always ensure that they have the trust of high net worth client because he has multiple sources of advice - relatives, friends, colleagues, etc.
As an advisor you must help investors to estimate the cost of child’s education, retirement, etc. and then allocate their wealth accordingly. Once you get a hold of how their future may look like in a monetary sense they will automatically start trusting you and not doubt you as an advisor.
A trustworthy financial advisor is what super rich are looking for as IFA can shoulder the responsibility of finances and that burden is off them. But an advisor must also at all times keep investors in loop - insist that they read all the documents and schemes, which will then build a healthy relationship.
Capital preservation a priority
The most important thing for high net worth individual is to preserve capital. Preservation of capital is a conservative investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio.
Capital preservation is the practice that protects the money which basically serves as your principal. It is not about growing your wealth rapidly, instead it’s about protecting what you already have. The returns are usually much lower, but at least there is a peace of mind knowing that capital is safe.
This is what differentiates high net worth individuals from other investors as the primary motive is to safeguard the wealth and then the second priority is to create more wealth.
Saving tax
Another important aspect for HNIs is tax. Tax efficiency can enhance the return in a client's portfolio.
Many a time, the goal of investment is to save tax, where return may not the priority. As an advisor you need to identify this need of ultra-rich clients and suggest them the funds that can be fruitful for them in this aspect. But, one must also look at other parameters like the risk profile of the client.
Hands-on liquidity
These days, super rich prefer an investment vehicle which can offer flexibility in terms of liquidity. Earlier, most HNIs would invest in real estate, but given the market conditions, they prefer to invest in a market place where they can liquidate their investment whenever in need.
An advisor should also take into consideration the liquidity needs his or her client may have currently or in the future and see to it that the investment offers that flexibility.
Risk-taking ability
Most of the times, people tend to think that risk taking ability of super rich is higher, but that is not always the truth. Advisor should ask questions and understand the risk profile of customer and then suggest investments accordingly.
Rikesh Mirchandani, Founder and CEO of Ocean City Capital Advisors told Cafemutual that an advisor needs to evaluate the risk taking ability of the client and advise them to invest accordingly. It is not necessary that a high net worth client would be a risk taking individual. On the contrary, he or she would be comfortable with earning modest return over a period of time.
Philanthropic investment or investing for social impact
Goals of high net investors could also be philanthrophy and investing for social impact. The super-rich who want to make a social impact are increasingly choosing philanthropic investments over charity donations, according to a report by raconteur.net.
The demand for greater transparency and accountability – watchwords of the post-financial crisis fallout – has very much influenced philanthropic investing.
An advisor may also suggest investing for social impact or philanthropy which is also increasingly becoming a tax-saving instrument.
