There comes a moment when some planners are forced to do the unthinkable: Fire a billion-dollar client.
Russ Hill, CEO of Halbert Hargrove in Long Beach, Calif., for one, says he is about to part ways with such a client, even though he has enjoyed the client personally. The extra effort and cost associated with keeping this high-maintenance person happy has convinced him that serving billionaires “is not a great business.”
Steve Lockshin, founder of the planning firm AdvicePeriod in Los Angeles, says that he, too, is in the process of firing a billion-dollar client who put a poorly run family office between himself and Lockshin, reducing the advisor’s ability to serve him effectively.
As a general rule, billionaires "beat you down to almost nothing" in profits, Ron Carson, consultant and founder of Carson Wealth in Omaha, "and they expect a lot."
That's partially because big-fish clients understand what their business can confer: If things go well, they can help make an advisor's career. Land a billionaire and, overnight, any practice can look large and established to outsiders.
If that client doles out references, so much the better.
Billionaires aren’t always a drain on resources, of course. Carson, who also advises other planners through his coaching business Peak Advisor Alliance, about 20 years ago began working with a client whose net worth eventually grew past a billion dollars. That client then began offering to write to Carson's prospects to recommend his services. He also routinely coached Carson about how to grow Carson Wealth.
"Looking back on the relationship I probably should have paid him for what he has done for to my business," Carson says.
But for dealing with difficult billionaires, here is a list of firing offenses:
1. Pricing problems. Billion-dollar clients often ask too much and pay too little. That makes it hard for advisors to cover their own expenses.
"You come up with a lot of ideas. If you are a reasonably ethical person, you agonize over those ideas," says Hill, whose client often asked his firm to consult and offer analyses on various strategies, but didn't necessarily implement them. "You give [the work] to them. They say, 'Thank you, good bye.'"
Carson says he usually charges anywhere from $25,000 to $100,000 for work that can range from a week to a month to analyze one area of a billionaire prospect's planning issues. If it goes well, the relationship can grow incrementally from there. Get the pricing right up front, he says, and you might be able to avoid future problems.
2. Lack of respect. Some billionaires simply do not appreciate the work their advisor does. "As soon as you are treated like the hired help" you know you have a problem, Lockshin says.
3. Too many intermediaries. Billionaires often direct their family offices, CPAs, attorneys or business managers to deal with advisors, Hill and Lockshin say. That's the setup for other problems, such as …
4. Buck passing. Planners often must urge their clients to make changes that require big mindset shifts and need a lot of work to implement. But people in a billionaire's family office don't always do that work well. When problems arise later, they blame the advisor, rather than taking responsibility for their own failings, Lockshin says.
Lockshin encountered one client who added more and more people to his family office. Eventually the client was paying his family office 30 times more than he’d been paying Lockshin and getting poor service in return.
By contrast, if you can establish a trusting relationship with the client's circle of advisors, it may be worth keeping the relationship, Carson says. In that case, those advisors become your true clients.
5. Refusing discretionary advice. It can become difficult to demonstrate one's value if you don't have discretion over a client's accounts, Hill finds.
"When [a client] is discretionary, we can say, 'Well, how did we do?'" Hill says. But "in a non-discretionary relationship, you say, 'If you had done everything we said, this is how you would have done.'"
6. Teflon syndrome. "The thing with the super rich is that they feel they are invincible," Lockshin says. One billionaire client "overspent and overspent and overspent. We said, 'Hey, you are going to run out of money.' "
Lockshin says he and his firm were able to show the client where he was headed if he didn't change his ways. Faced with that revelation, he changed his behavior sufficiently to preserve the relationship with Lockshin, not to mention his savings. But it doesn't always happen this way.
7.Persistent risk-taking. Self-made billionaires become rich by taking big risks, Lockshin says, but later fail to appreciate that to preserve and grow their wealth, they need to shift to making much more slow, steady and strategic planning decisions.
Many simply cannot.
Often "all they care about is performance and hitting the cover off the ball," he says.
In his view, Republican presidential hopeful Donald Trump, who saw his wealth plummet early in his career after risky real estate bets, offers a perfect example of this kind of client.
"He sacrificed the liquidity and simplicity of the public markets for a super risky, super illiquid life," Lockshin says. "A lot of wealth is lost that way."
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