Working With the Wealthy

Wealthy clients are rarely a single decision-maker with a single goal. They are families with histories, roles, rivalries and behavioural habits that shape every investment decision. This module shows how the source and stage of wealth, family dynamics and common biases affect advice; sets out the skills an adviser needs to discover, communicate with and educate clients; explains what makes ultra-high-net-worth families different; and builds a governance framework that lets a family make joint decisions and keep making them across generations.

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What you will learn

1. Describe how the source and stage of wealth, family relationships and behavioural biases shape a family's wealth and the way it should be managed, including the dilution of wealth across generations.

Source of wealth shapes attitudes: founders favour control and concentration, inheritors favour preservation, executives carry concentrated stock and career risk.
Stages of wealth: creation, preservation and transfer, each with different priorities.
Founders often show overconfidence, illusion of control and familiarity bias; inheritors often show status quo bias and an endowment effect.
Loss aversion and mental accounting are common across wealthy clients and must be managed, not ignored.
Real wealth per heir = W0 (1 + r - s)^n / N: spending and the number of heirs can shrink each member's share even as the total grows.

2. Identify the skills an adviser needs to profile, acquire, advise, communicate with and educate private clients, including how to express risk in terms a client can act on.

Discovery gathers hard facts and soft information (values, fears, family relationships) through open questions and active listening.
Risk profile = risk tolerance (willingness) plus risk capacity (ability); when they conflict, capacity usually sets the limit.
Wealthy clients come mostly through referrals; reputation and discretion are the main acquisition tools.
Express risk in money and probability: a one-in-twenty bad year is about mu - 1.645 sigma under a normal approximation.
Educate spouses and heirs in stages: allowances, learning portfolios, observer seats, then full responsibility.

3. Distinguish the needs of ultra-high-net-worth clients from those of other private clients, and explain how providers adapt their services to meet them.

UHNW needs stem from complexity: illiquid and private assets, many entities, several jurisdictions and generations.
Consolidated reporting across custodians and entities is a core UHNW need.
UHNW families access direct and co-investments, private markets and negotiated fees.
Borrowing capacity = sum of LTV x value across collateral; illiquid assets often support little or no lending.
Formal governance, family offices, philanthropy, privacy and security become central at UHNW scale.

4. Recommend a framework for joint family decision-making, including a family constitution and governance bodies, and explain how the family can maintain it over time.

Separate family, ownership and business decisions into distinct forums with clear roles.
Family constitution: values, ownership and employment rules, distributions, conflict resolution and an amendment process.
Family assembly (all members, informs and ratifies) versus family council (elected, acts between assemblies).
Business board with independent directors; investment committee with an IPS; family office to execute.
Maintain it: regular meetings, periodic review, role succession, staged inclusion of the next generation, independent facilitation.

Module at a glance

Source of wealth (founder, inheritor, executive) and stage (creation, preservation, transfer) shape goals, risk attitudes and biases.
Founders often show overconfidence and illusion of control; inheritors often show status quo bias and an endowment effect.
Real wealth per heir = W0 (1 + r - s)^n / N; spending and family growth can shrink each member's share even as the total rises.
Discovery combines hard facts with values and family dynamics; risk tolerance and risk capacity are assessed separately.
Express risk in money and frequency: a one-in-twenty bad year is about mu - 1.645 sigma.
UHNW needs come from complexity: entities, jurisdictions, illiquid assets, consolidated reporting, credit, governance.
A governance framework separates family, ownership and business decisions and must be maintained through regular meetings, reviews and succession.

This free module has 4 lessons, 16 practice questions with full explanations and 1 essay case with a model answer.

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