The Wealth Protection Process

By Hannah Shaw Grove and Russ Alan Prince

July, 2007 Financial Advisor Magazine

Knowing what to do is one thing; knowing how to do it—and to keep it done—is where the advisor shines.
    Operationally, the wealth protection process is comprised of the following six phases, but should not be treated as an incontrovertible process. If utilized as a broad conceptual model, it can guide the wealth manager and the client as protection objectives are established and met. The six phases are:
    • Phase 1: The At Risk Assessment
    • Phase 2: Evaluate Alternative Solutions
    • Phase 3: Select Solutions
    • Phase 4: The Action Plan   
    • Phase 5: Implementation
    • Phase 6: Follow Through 
    As with many wealth management offerings, wealth protection will invariably require the use of outside experts throughout the process.

Phase 1: The At Risk Assessment
    During this phase the basic protection concerns and needs of affluent clients are identified. Success in each of the subsequent phases of the wealth protection process is reliant on the risk assessment being as complete, thorough and accurate as possible.

Phase 2: Evaluate
Alternative Solutions
    Both asset protection and physical security will have an array of solutions and these must be considered and screened in the context of the individual or household they have been proposed for. An important method for evaluating wealth protection solutions is the following conceptual algorithm—the net value of a security solution:

Net Value of a Security Solution = 
Intensity x Duration
Lifestyle Issues x Financial Issues
    Every wealth protection solution has four variables that can be modified within set parameters. One is intensity: How concentrated should the security solution be? Another variable is duration: How long will the solution be active? The denominators are lifestyle considerations—the extent to which a wealth protection solution is an impediment to your client’s lifestyle—and financial considerations, or the costs of using a particular wealth protection solution.

Phase 3: Select Solutions
    Once the most appropriate and effective solutions have been identified, it is time for the wealth manager and the client to select those that best fit their needs and overall wealth protection goals. Using hypothetical scenarios can often help a client identify those issues that are of greatest personal concern and those areas with the greatest risk exposure.
    Some of the questions wealth managers can use during this phase include:
    • What if someone kidnapped your daughter?
    • What if you were being followed everywhere by an obsessive fan?
    • What if a teenager claimed to be your illegal offspring?
    • What if someone is listening in on all your phone calls and is reading all your e-mails?
    • What if a stranger knows how much money you have and where it all is?
    • What if someone steals your identity and empties all your accounts?
    • What if someone filed a frivolous but very real lawsuit against you for $50 million?
    • What if you found your private jet trashed the next time you boarded it?
    While these types of scenarios are unlikely, they are still possible. The following algorithm can be useful when evaluating a potential incident and its solution, as it can help affluent clients perceive each within the confines of their personal circumstances.

Need for a Wealth Protection Solution =
Probability of Incident x Severity of Incident
    Once complete, the wealth manager and the client should work together to rank the incidents by the degree of negative impact. And finally, as a generalist, the wealth manager should maintain focus on the client’s overall goals and not be persuaded by the zeal or enthusiasm of a specialist to adopt a strategy that is not the right fit.

Phase 4: The Action Plan
   Once the advisor, specialists and client agree, each solution is customized for the client and a detailed proposal and blueprint for implementation is drafted. The overriding goal of the action plan is to give the client a clear sense of the steps required to secure their financial and personal property.

Phase 5: Implementation
   The action plan can serve as a To Do list of sorts, and next steps are relatively straightforward. This phase always requires a significant amount of work on the part of the specialists and the wealth manager, and is often where the process is derailed by unanticipated issues or mired in legal and contractual paperwork. A successful implementation will require ongoing involvement and commitment from the client and all the professionals.

Phase 6: Following Through
    Both our statistical studies and our anecdotal experiences confirm that many wealth managers and their clients make a critical mistake after the implementation phase by not following through on the plan to evaluate or modify its components. Effective follow-through includes these regular activities:
    • Environmental scanning. Work with the protection specialists to stay abreast of any changes impacting both wealth protection disciplines and to what extent your clients’ plans are affected.
    • Client-driven contact. Changes in the client’s life, whether marital, lifestyle or geographical, can have a material impact on a wealth protection plan. When this occurs, the wealth manager should update the client profile and reevaluate the efficacy of the plan.
    • Ongoing and periodic reviews. Wealth managers meet with clients on a regular basis and wealth protection requires the same level of attention. Periodic meetings provide a forum for feedback and a chance to observe various protection strategies as part of the overall wealth management experience.
    Adopting a systematic approach to wealth protection can help make a serious and sometimes unpleasant task proceed more smoothly for all parties involved and ensure that the result is a plan that delivers protection and peace of mind for the wealthy client.

Hannah Shaw Grove is the author of five books on private wealth and advisory practice management. Russ Alan Prince is president of the consulting firm Prince & Associates.