I recently wrote that it doesn’t matter whether you make $46,000 a year or $460,000 the basics of personal finance are always the same, and one of my readers/fellow blogger, Investor Junkie, made a comment,

@Evan: It would be great if you could write a few blog posts on your observations you’ve had working with high net worth clients. What got them there and with you think is different with them than say the average joe.

Right off the bat, I am going to tell you that I have no idea what got them there, for that I would defer to studies and books that are done on the subject.  I do not deal directly with high net worth clients.  The Financial Planners in the office find, build and cultivate the relationships.  So my experience is not really like that of Thomas J. Stanley author of, The Millionaire Next Door.  My role is more brain storming and putting together documents and calculations.

So basically I see almost every balance sheet that may have significant net worth which goes through my office, and then I prepare materials for the planners’ second meeting and beyond.  So when Investor Junkie asked me that question I started to thinking about some similarities I often see.

Similarities of High Net Worth Clients

As you could imagine the balance sheets are very different from family to family, but there are a few similarities that I see.  It is irrelevant if you agree with that particular attribute – it is what I see.  I am going to try and not opine on the various attributes.

The House is almost always Paid off

Prepaying your mortgage is always a hot topic on Personal Finance Blogs.  Everyone once in a while one of the big players in the field will put a post and it will garner tons of comments.  The comments are usually heated and go both ways about how the move is stupid and then invariably someone will say, its a great move.  Regardless of how you feel, most of the high net worth clients’ balance sheet that I see will have either a paid off house, or one with a very low debt to equity ratio.

Side note: Nickel from FiveCentNickel just paid of his mortgage. Congrats.

They Almost Always Own a Business

Almost every high net worth client’s balance sheet has a business on it.  The types of businesses range from the mundane, lawyer who owns their practice, to beyond what I could have imagined as a viable business.  Recently, a balance sheet came across my desk and the guy’s  business was buying and selling a certain type of wire.  Even after being explained the business three times, I still couldn’t understand how this business was worth well north of $10,000,000.

They Almost Always have Investment/Financial Advisors

Almost every single high net worth client/prospect is not hands on when it comes to their own investments.  Some are more active than others when it comes to asset allocation, but for the most part unless they are in the money business (fund managers, hedge fund execs, etc.) they just don’t deal with it.

I never really understood why its so easy for PF Bloggers to dismiss the usefulness of a financial advisor or investment advisor.  Just because that particular blogger can understand asset allocation, doesn’t mean the average person can, or even a high net worth client who doesn’t want to deal with it.  Also, there are some intangibles such as talking the client down from the ledge when the market falls 30% in 2 months.

Do you disagree with these attributes in terms of their effectiveness? Anyone else in the business?

Share This