Not unsurprisingly, the goal for most high-net-worth (HNW) individuals is to keep the family wealth, well.. in the family! Sounds pretty simple, right? Well, sometimes the most straightforward objectives are the most challenging—not for lack of knowledge, but for lack of awareness.
By preserving wealth and assets – both tangible and financial – a sustainable family legacy can thrive for generations. But even the most well-guarded and cautious families are susceptible to risk. That's why everyone, no matter how financially savvy you may be, should take the necessary steps to protect their assets, privacy, reputation, financial investments, and loved ones.
But before we dive into risk mitigation, let's chat a bit about the often negative connotation surrounding that scary word, "risk."
Risk Management is (Part of) Wealth Management
Many people often consider risk as a situation that will negatively impact them in some way. But that's only sometimes the case. What if we told you that risk isn't always adverse?
It helps if you think of risk simply as an event with the possibility of impacting your life. Sure, that means that negativity could be involved, but what if that is because you're placing more value on preserving a loss than achieving a gain?
Because protecting wealth is just as important as building wealth, much of wealth management naturally includes risk management. Rather than focusing on the possibility of risk, let's focus on the advantages we can take to preserve our affluence. Identifying weaknesses that could threaten the security of our physical and financial assets allows us to harness the opportunity to plan for our success. That's what building wealth is all about, anyway!
We've compiled a list of the five most common threats to family wealth to allow you to address potential weaknesses within your own life.
- Technology
With more critical and confidential information being shared and stored online, it's imperative to practice cybersecurity awareness. Your personal financial, medical, or legal information (as well as your private photographs and family data) could be at risk of extortion. One study indicated that more than 25% of family offices and businesses lost revenue, one-fifth had confidential information exposed, and 15% suffered blackmail or ransom-related losses or delays.
A cyber security expert can perform an audit, address weak points, and determine policies for handling sensitive data. But in the meantime, here are a few ways to protect yourself:
- Use a password manager
- We offer a password manager to our clients called Keeper. If you’re interested in learning more about this service, let us know!
- Don't open, and delete spam
- Regularly back up your data
- Install anti-virus software on your computer and become familiar with recognizing the signs of phishing scams
- Especially when traveling or using public Wi-Fi, use a virtual private network (VPN) as much as possible
- Physical Safety and Security
Whether in the comfort of their own home or traveling abroad, HNW individuals can become targets. Always practice a healthy level of situational awareness, remain alert to your surroundings, guard your close relationships, and pay attention to your instincts.
- Procrastination
We understand how busy you are – you're working hard at building a legacy, after all – but don't delay making essential updates to your estate plan or financial documents. For example, if your beneficiaries aren't correctly named, your estate could face an expensive and lengthy probate process. The last thing you want is for your heirs to become tied up in lingering financial matters upon your death. If you're unsure which boxes to check here (since a HNW estate plan can be more complex), work with our office and your estate planning attorney to ensure you're covered.
- No Long-Term Strategy or Decision-Making Process
If you wish to sustain wealth for generations, you'll want your heirs on the same page. Family communication is vital in long-term planning. Adequately and transparently explain the mechanics and purpose of your legacy plan. Consider horizontal decision-making over the traditional top-down process, which leaves your private plans unknown to many family members. If open and honest communication is maintained, multiple generations will be aware of the long-term family plans, making the decisions and guidance clearer and easier to sustain. Always beware of silence; it doesn't equal agreement.
- Poor Planning
Even the most mundane risks – tax, insurance, and health care planning – can be severe. It's imperative to protect your valuable investments, real estate and otherwise. For example, have you checked on the flood insurance of any of your real estate assets lately? A 2017 study discovered that 54% of HNW homeowners were unprepared for flooding. Don't wait for the next disaster to review your policy.
Another place HNW families might be underprepared is healthcare costs. Because HNW individuals rarely have to worry about the impact of healthcare costs, they often absorb a false sense of security in their preparation. And as most individuals with HNW assets don't qualify for standard insurance policies, they often lack the proper coverage for medical unknowns, emergencies, or chronic conditions. Any of these events can quickly put a dent in your portfolio. Periodically reviewing and adjusting your plan can restore your sense of security.
Preserving Lasting Wealth with SA Piggush
As someone who has committed their life to creating a lasting family legacy, you’ll want to keep these simple threats from throwing your plan off track. Accruing extraordinary wealth doesn't shield you from risks but remaining aware of their likelihood can very well help you to protect against them.
Family wealth can be a beautiful legacy to pass on. Our goal is to help you preserve it and pass it on intact and secure.
At SA Piggush, we guide clients to ensure that no matter what critical life events arise, they are ready for them! If you are interested in partnering with a financial ally who will help you look out for and mitigate these potential threats, we welcome you to give our office a call to see if you are a fit.