Living Dangerously

By John Bowen

These days, wealthy investors are more concerned than ever about protecting what they have. That means not just their financial assets but also their property, their confidential information and their families—in other words, all that they hold near and dear.

It's hardly surprising that wealthy investors have security on the brain. We live in an environment of uncertainty that ranges from phisher emails and identity theft to full-blown acts of terrorism. You've got to respond to this evolving need for protection if you want to work with the affluent. Of course, you can't protect clients from every type of danger, but you can do a lot to understand their biggest security issues and safeguard many of their interests.

SECURITY CONCERNS

To gauge the biggest security concerns of today's affluent investors, Russ Alan Prince, CEG Worldwide's senior managing principal, surveyed more than 400 individuals with at least $1 million in net worth about their overall outlook for their security. We discovered that the affluent are nervous about the world we live in; in fact, 74.5 percent say that the world is a dangerous place.

More wealth doesn't reduce this fear. On the contrary, more wealth brings more anxiety. For example, while 89.2 percent of all affluent investors think the security situation will deteriorate, 94.2 percent of ultra-affluent investors (those with more than $25 million in net worth) anticipate a worsening environment in the future. Even more striking is the fact that nearly all of the very wealthiest respondents (92.4 percent) say their wealth makes them special targets. By contrast, just 28.2 percent of regular affluent investors (those with $1 million to $5 million in net worth) say their wealth singles them out as special security risks.

Digging deeper, we see that security concerns fall into four categories:

• Security of self and loved ones. More than three-fourths (77.5 percent) of the affluent are very or extremely concerned about predators targeting a loved one, while 57.1 percent are highly concerned about the abduction of a loved one.
• Security of confidential information. Like everyone else, the affluent want to protect their personal information. Identity theft is therefore a key issue for the affluent, 77.5 percent of whom are very or extremely concerned about having their identities stolen. The second most important concern is having someone gain access to private business data (42.6 percent), followed by someone gaining access to private medical records of themselves or a loved one (41. percent).
• Security of wealth. As discussed in last month's column about wealthy physicians, the affluent generally work hard to earn their wealth and want to keep it safe. Here, the biggest worry is that someone will take financial advantage of their children or grandchildren (72.6 percent), followed by the fear of being targeted by unfounded or frivolous lawsuits by someone they know (67.9 percent) and by people they don't know (58.5 percent). Close to half worry about embezzlement at work (48.5 percent) and working with unscrupulous people (46.6 percent).
• Security of property. More than half of the affluent investors surveyed are very or extremely concerned about their houses being either burglarized (56 percent) or vandalized (52.5 percent). The fear that valuables would be lost is a serious concern of 29.7 percent of the affluent, while vandalism to property such as cars or boats was cited as a big concern by more than one-quarter of wealthy respondents (26.9 percent). Note that, while property protection is not as important to the affluent as the other categories, securing a residence is relevant to protecting family and other loved ones.

SECURITY CONSULTANTS

A quick review of your own client base probably reveals that your affluent clients share some or all of these concerns. One way that some top wealth managers are helping clients address these issues is by including a security consultant in the network of outside professionals with whom they regularly work.

Security consultants use a defined process to evaluate and control the risks their clients face. The best consultants use a process that starts with risk assessment—gathering information on a client's security concerns and needs—followed by an evaluation of potential solutions. There are many options—from crisis contingency planning and background checks for employees to encryption technology and surveillance, as well as investigations into potential business partners and advanced security systems and transporter services.

Once a solution is selected, the consultant will develop an action plan that spells out the solution, implementation and duration, and then implement the plan. The consultant then provides a regular, systematic follow-up procedure.

The path to finding a reliable security consultant isn't easy. Many people out there claim to provide security consulting, but few actually deliver the reliability and advanced services that your clients need. In fact, affluent investors tell us they have a tough time finding people with whom they want to work.

For example, the vast majority of wealthy individuals surveyed (75.4 percent) had hired security consultants within the last three years—and nearly all of the ultra-affluent investors with more than $25 million in net worth had done so (98.7 percent). These investors also told us that their experiences with security consultants hadn't been positive. Just over one-quarter (26.4 percent) of those who hired a consultant would work with that consultant again. What's more, the satisfaction rate falls as wealth increases: A mere 11.5 percent of the ultra-affluent segment would rehire their previous consultants.

These findings are important for you to know as a wealth manager, because they tell you two things: The affluent see their security as serious business and want the services of a security consultant, and you can bring tremendous value by helping them work with one who is highly competent, reliable and trustworthy.

Where do you start? The best method is through referrals. Clearly, your chances of finding an ideal security consultant will increase substantially if you work with one who comes recommended by another trusted advisor. The first place to look is your own network of professionals, such as a private client lawyer, accountant or attorney. As you get names and evaluate candidates, focus on the following three characteristics any top-quality security consultant should possess:

• Integrity. You and your clients must be able to trust that the security consultant is ethical and uses good judgment. To find that type of consultant, make sure he or she is endorsed by people that you trust—preferably a member of your professional network or another close associate in your professional life. Also determine what each candidate will and won't do when it comes to security and protection. By knowing where the consultant "draws the line," you can gauge his or her overall ethical position.
• Experience with the affluent. Although the affluent share some security concerns with the rest of the population, they also have unique issues due to their wealth. In addition, their security needs are often different from those in the corporate world. That's why security consultants who focus on working with corporations often don't pan out when working with private clients.
• Technical expertise. Obviously the consultant should be highly skilled. That said, no one security consultant should be expected to offer every type of expertise required to solve the full range of complex security issues. Therefore, the consultant should be able to access niche experts and coordinate their efforts in providing solutions to your clients. In this way, your consultant should act much like a wealth manager does—coordinating a team of experts to deliver one seamless package.

Building a great wealth management practice requires more than investment advice. Top financial advisors address their affluent clients' pressing financial concerns by working with a team of experts. Protecting your clients from their biggest fears may be one of the most important services you can deliver.