Broker Check

Three Money Mistakes the Super Rich Don’t Make

January 08, 2024

KEY TAKEAWAYS:

  • Be crystal clear about what you want your wealth to
    accomplish—and don’t lose sight of those goals.
  • Avoid financial advisors who don’t have what it takes
    to help you—or worse, who seek to actively harm your
    financial future.
  • Engage in regular financial checkups—and get a second
    opinion whenever you feel uncertain.

The self-made Super Rich—those with a net worth of $500 million or more—aren’t immune
to making mistakes with their wealth. But we find that they do tend to avoid certain crucial
errors that might otherwise impact their bottom lines and financial futures.

What’s more, these are the same mistakes that can trip up investors and families at just
about any level of wealth. The upshot: You can potentially do yourself and your wealth a big
favor by learning what the Super Rich don’t do with their money!

With that in mind, here are three of the biggest financial blunders that the Super Rich make a
point to watch out for so they can sidestep them.

Mistake #1: Losing sight of goals

The Super Rich often establish family offices to address the multiple financial and personal
objectives they have. These family offices are extremely adept at helping Super Rich families
develop and spell out their goals and even their broader philosophy about wealth and values.
They might, for example, craft a family vision statement about the family’s optimal outcomes
and the reasons for wanting them. Then they create a mission statement and plan with the
steps to take to realize that vision.

From there, all decisions about wealth are made only after considering the family’s vision,
values and action plan. Any moves or changes should reflect those underlying factors. By
having systems in place to never lose sight of their key goals, the Super Rich do a superior
job of not chasing “hot” investments.

That’s not to say the Super Rich are entirely rigid with their wealth planning. Without
question, in order to adapt to changing circumstances—in family needs, for example—
high-functioning family offices are designed to be quite flexible. When goals change significantly
enough, adjustments are made.

The lesson for everyone: Be very clear about what you want to accomplish. While it is
often important to be flexible, the decisions to make adjustments should be deliberate and
not a product of a lack of oversight or because you’ve discovered a shiny new investment
“opportunity” that has nothing to do with your financial goals, values and philosophy.


Mistake #2: Working with professionals who are
subpar—or worse!

The Super Rich, because of their wealth, understand that a lot of professionals would like to
do business with them—but that not all of those professionals are worthy of consideration.
Indeed, we find that the world is often filled with “professionals” who are actually:

• Pretenders—professionals with good intentions who aren’t particularly technically
capable, especially when it comes to sophisticated solutions. Pretenders might care
deeply about helping you, but usually are unaware of their limitations.

• Predators—criminals looking to use their guile and cunning to separate you from a
percentage of your wealth.

• Exploiters—very smart professionals who often promote complex, legally aggressive
financial solutions that may not prove viable. While these solutions are not illegal, there
is a good possibility they will explode on you at some point down the road. Exploiters
promote these solutions because they put a lot of money into their own pockets.

Often it’s hard to separate the good from the bad. So how do the Super Rich identify and
avoid these three types of “professionals”? The most successful family offices take certain
steps to help confirm they are working with consummate professionals (see Exhibit 3).

For starters, the Super Rich gravitate to leading authorities. Whether for senior management
positions or as external providers, the objective is to work with recognized experts—industry
thought leaders.

They also rely heavily on referrals when seeking out consummate professionals. The most
consistently effective method is to garner referrals from high-quality professionals they
are currently engaging. That’s because, generally, high-quality professionals tend to know
other types of consummate professionals. Example: A top money manager likely knows elite
wealth planners and leading insurance specialists.

Finally, they’re willing to pay well for results. While the Super Rich make a concerted effort
to minimize costs, they are not going to forgo desired results simply because pursuing
those results might require them to spend some money. The Super Rich understand that it’s
important to assess a provider’s ability to deliver value, not just his or her stated fee or price
schedule.

The lesson for everyone: It is essential to avoid Pretenders, Predators and Exploiters
if you seek out financial professionals to work with. By turning to leading authorities—
thought leaders—and soliciting referrals from high-caliber professionals you trust, you
greatly increase your chances of working with a truly skilled professional who has both the
willingness and ability to get you to where you want to go.

Mistake #3: Failing to get second opinions and do
stress tests

“Trust, but verify” is a phrase made famous by Ronald Reagan talking about the Soviet Union.
The Super Rich, especially those using high-functioning single-family offices, take that message to heart.
They are fully aware that the consummate professionals they hire can
make mistakes. Therefore, the Super Rich rely on second opinions and stress testing. 

Ideally, a second opinion occurs before action is taken. Example: If a single-family office is
considering a particular tax mitigation strategy, its senior management might get a second
opinion from another noted leading tax authority to be certain about the validity and viability
of the tax strategy. Second opinions are commonly sought whenever there is any question
or any sense of uncertainty. That said, second opinions can be done at any time. For
example, many investors (both Super Rich and otherwise) conduct second opinions about
their overall financial strategy if they’re worried they might not be on the right track—or that
the professionals they’ve enlisted aren’t up to snuff.

Stress testing is when the Super Rich turn to consummate professionals to evaluate an
existing strategy already in place. It is a check to make sure what they did remains both
viable and valid—that things are working as predicted. For many of the Super Rich, stress
testing is like an annual medical checkup. Something does not have to be wrong, but it is a
very good way to catch a problem before that problem becomes severe.

The lesson for everyone: No matter your level of wealth, getting a second opinion when you
are even slightly unsure or uncomfortable is usually worthwhile. Similarly, periodically stress
testing your planning and investment portfolio can enable you to avoid problems now or
down the road.

Get started

By and large, the self-made Super Rich have proved that they know what to do—and what
not to do—in order to create, grow and maintain sizable wealth. By taking steps to make
savvy moves while also avoiding major slipups, you can potentially put yourself in the best
possible position to join their ranks.

One way to get started: Consider getting a second opinion about the current state of your
finances and how effectively they’re being managed. A comprehensive review of where you
are today, where you want to be and the gaps between the two may indicate that it’s time to
find the expertise that will truly add value to your life—and the lives of those you care about
most.

Contact your financial professional to discuss your goals and how your plan is helping you
make progress toward them.