When working with the ultra-wealthy, the most common unmet need I encounter is the role of the personal Chief Financial Officer.
The typical client has a separate adviser for each key discipline — estate attorney, tax attorney, CPA, portfolio manager, insurance agent, real estate agent and so forth. While each of these roles is usually filled by a qualified expert in their area of expertise, there is no single person responsible for organizing and coordinating the efforts of these professionals.
As a result, that responsibility falls on the client, who is rarely capable of filling this role.
A personal CFO serves as that coordinator, bringing together all of the diverse areas of expertise from the team of professionals the client employs, to organize the information flow, summarize it, prioritize it, and deliver it to the client on a timely, as-needed basis.
Clients, should they decide to engage a personal CFO, should find a financial professional who is well-versed in all areas of personal finances. This is not to say that this individual must be an expert on the level of the various professionals on the team Instead, he or she needs to have a general understanding of each discipline within the comprehensive suite of financial services that a typical ultra-wealthy client requires.
Often, clients who do not have a personal CFO will lean on one of more of the experts on their team, most often their CPA, to serve as the main point of contact for their team. While this can work better than the alternative — the client struggling to organize the team — it creates a conflict of interest for that team member.
A personal CFO is independent of the various disciplines within the team, so they can be objective about the performance of each team member. If a team member is not performing to the level required, the personal CFO can make an objective recommendation to replace that individual.
This is a critical function of the personal CFO that adds tremendous value for the client. It is also much easier for the client to make a good decision when a team member should be replaced, as the personal CFO serves as a buffer between the client and the various team members, so personal relationships between the client and the team members do not cloud the client’s judgment.
Beyond coordinating and managing the activities of the financial services team, the personal CFO can also assist the client with managing family affairs. The ultra-wealthy highly value discretion and privacy. Having a personal CFO coordinating sensitive family information can protect the client, providing peace of mind and a stronger sense of information security.
Another key area of support that a personal CFO can provide is within the estate planning/charitable giving realm. Often the ultra-wealthy have strong family legacy goals, but wish to pursue these initiatives with anonymity. Maintaining that anonymity through the use of a personal CFO can allow the client to be more directly involved in the development and implementation of the legacy plan, while maintaining anonymity for themselves and their family members. This is especially important and valuable for those clients who are public figures, public company founders and executives, and the famous.
The personal CFO provides the greatest value to the client by sifting through all of the minutia created by the team members, organizing that data, and delivering it to the client in a format that is simple and actionable, and doing this on a timely basis. This requires that the personal CFO not only understand the information generated by the team, but have strong organizational, writing, computer and communication skills.
Highly valuable to the ultra-wealthy client is the ability to review the diverse and complex information generated by the team, understand it, and then determine the most effective way to organize it and distill it down into a format that is customized for the client, in a way that the specific client can easily understand and use to clarify and simplify their key life initiatives.
While there is certainly a significant cost associated with adding a personal CFO to the client’s team, the management of the team, organization and delivery of actionable information, peace of mind gained through the single point of contact, and privacy protection, easily justify the added expense.
The ultra-wealthy live complex and complicated lives, so anything they can do to simplify and organize their lives is well worth the effort and cost. By engaging a personal CFO, the client can avoid the encroachment on their personal time that inevitably occurs when they are forced to coordinate and organize their financial team themselves.
Life is short, and time wasted is time lost forever. For the ultra-wealthy, a personal CFO can be the most valued solution to the unmet need of organizing and coordinating their financial professionals so that the client can focus on getting the most out of life for themselves and their family members.
— Craig Allen, CFA, CFP, CIMA, is president of Allen Wealth Management, and has been managing assets for foundations, corporations and high-net worth individuals for more than 25 years. He can be contacted at craig@craigdallen.com or 805.898.1400. Click here to read previous columns or follow him on Twitter: @MPAMCraig. The opinions expressed are his own.