Academic journal article Journal of Accountancy

The Rich Truly Are Different: Very Wealthy Clients Have Special Goals and Objectives

Academic journal article Journal of Accountancy

The Rich Truly Are Different: Very Wealthy Clients Have Special Goals and Objectives

Article excerpt

Most of the financial advisory clients CPAs work with require a full range of products and services to meet their investment needs. The ultrawealthy client, however, demands broader services and skills than the merely wealthy one. Because the number of ultrawealthy families is growing at a rate of 12% a year, more CPAs face the happy prospect of serving this market. To do so they will find themselves tailoring services and sharpening their skills in estate planning and investment management to meet the special needs of the very rich. This article outlines the unique character of the ultrawealthy client and the new skills and services CPAs need to assist this growing demographic group.


In today's world of the millionaire next door, the definition of what it means to be wealthy has changed. In 2004 even average Americans need to be millionaires--in 401 (k) plans, IRAs or personal savings--simply to ensure a comfortable retirement. For CPAs, recognizing the difference between the comfortably wealthy and the ultrawealthy is the first step in providing the right services.

The distinction between the merely rich and the truly rich rests on two pillars--the amount of the client's net worth and his or her goals for using it. The ultrawealthy expect their assets to outlive them and thus need help transferring these funds to their heirs of to charity. The merely wealthy expect to spend their assets and leave only a modest inheritance. Most CPA financial planners define the truly rich as families with more than $25 million in net worth. But some clients with net worths of $5 minion or $10 million act like the ultrawealthy while others worth more than $25 million don't qualify as truly rich, depending on the composition of their assets--illiquid real estate vs. cash and securities.

Lifestyle issues such as an affinity for art, photography, convenience flying in an executive jet of an extravagant second home raise the amount the client needs to spend on his or her own needs. Longer life expectancies also in crease the amount required. "At $5 million to $10 million we begin to see 'ultrawealth'," says Thomas Tracy, CFA, CFR of Kochis, Fitz, Tracy, Fitzhugh & Gott Inc., in San Francisco. At Kochis Fitz 2% of its client base qualifies as ultrawealthy, representing 25% of the firm's assets under management. But sometimes even the ultrawealthy don't have much to give to charity or leave to their heirs. Tracy says "some clients' lifetime projected cash needs top $7 million for their personal use."

Ultrawealth can vary with location because of differing costs of living and lifestyle expectations. "Here in central Ohio you find more clients with net worths of $5 million to $10 million looking for high-end services," says Peggy Ruhlin, CPA/PFS, CFR Ruhlin's Columbus-based firm, Budros & Ruhlin, counts clients in the ultrawealthy category as 15% of its client base, representing 40% of the assets under management. "These are the quietly wealthy who live below their means and have charitable inclinations." (See the box on page 36 for charitable-giving resources.)

Whatever the number, at some point on the wealth scale the client's circumstances demand different services, planning approaches and investment management techniques. CPAs differ in how they choose to deliver that advice to wealthy clients.


The business model for dealing with ultrawealthy clients varies. Some CPAs opt out of adding services and simply refer high-end clients to specialists. Others provide some services such as bill paying, account aggregation and due diligence on investments and refer out financial planning, asset allocation and actually investing the client's money. (With account aggregation CPAs gather information about a client's assets from all sources and "aggregate" it into one statement.) Yet others expand to offer all services under one roof. …

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