In almost three decades of assisting Golden Geese (aka High Net Worth individuals) with their Back-Up Plans, I have often observed certain behaviours by the clients themselves that undermine their ability to fully achieve their goals. This is the first in a series of blogs where I will examine Back Up Plans for Golden Geese, the various ways you can self-sabotage, and provide some suggestions as to how one can avoid these roadblocks to success.
LESSON ONE: Wasting time costs money:
I once had an UHNW client who was seeking a Citizenship by Investment and new tax home. His goal was to legally sever his future American tax liability after a pending liquidity event. As frequently happens, the client assigned an assistant to gather all the necessary documents.
With my office’s guidance, she quickly applied for and obtained various birth, marriage and divorce certificates etc. However, there was one item that required the client and their spouse’s participation – passport photographs.
Literally all the elements were in place to execute the Back-Up Plan except for the photographs of the client and his spouse. When asked, the assistant advised that every time she tried to arrange for the photos to be taken (including having the photographer come to the client’s home), she was put off. The assistant quietly speculated that the client wanted to “lose a few pounds” before having the photos taken. Over two months was lost on this one outstanding obstacle…and the clock was still running!
Frustrated and concerned for my client’s best interests, I did some simple math to determine how much this delay was costing? First, I looked at the client’s previous year US tax return and noted the amount of tax paid. Assuming that he would have similar income and capital gains in the current year, I divided that figure by 365 and came up with the “Daily Tax Burn Rate”.
The result even surprised me, so I immediately sent an email to the client noting that the procrastination with the photos had delayed the severance of their on-going US tax liability for an additional two months. The real world consequence was several hundred thousand dollars in avoidable US tax. The assistant called me the next morning to advise that moments after my email was received, she was instructed to arrange for the photographer for that evening.
The importance of momentum
Countless times during my career, clients to whom I proposed a Back-Up Plan that contained a specific Golden Visa, Residence by Investment or Citizenship by Investment element, disappeared for long periods of time and then resurfaced. Always included in my planning is a warning that program criteria; government fees or investment requirements increase; and significant processing backlogs develop or annual quotas are filled. When they clients reappeared saying that they were ready to proceed, I had the unfortunate responsibility to inform them that the costs had increased substantially; or the timing no longer fit their requirements; or in the worst case, that the program had closed entirely.
The lesson to be learned, is that when a qualified and experienced advisor proposes a Back-Up Plan that meets your goals and objectives, take all necessary steps to execute the Back-Up Plan promptly and completely.
LESSON 2: Silo-ing advisors to save money costs money:
HNW individuals usually have a team of legal, accounting and financial advisors. Sometimes this is in the form of a single or multiple family office. Unfortunately, even sophisticated clients might not appreciate the complexity and interconnectedness of an effective Back-Up Plan to the other elements of their lives.
So in order to avoid “running up the clock”, they are often tempted to not have me interact with “their team” and instead use themselves as the filter and gatekeeper of information. This can be a costly mistake.
I always emphasize to clients that it is in their best interest that I work with their various other advisors in developing their Back-Up Plan and keeping them informed about its use. Indeed, I almost exclusively work on a project fee “by stages”arrangement so that there will be no additional charge for my time interacting with their other advisors.
Quite frequently this interaction uncovers potential negative ramifications in another area which must be taken into account when designing their Back-Up Plan. Furthermore, this interaction often results in a more refined strategy with lower cost and greater quality of outcome.
A recent positive example is when one family office advisor made a passing comment about the client’s strategic philanthropic interests. Picking up on this, we were then able to leverage and direct his existing philanthropy in a way which allowed us to secure key elements of the Back-Up Plan without any additional investment.
So breaking down silos can result in lower risk and better outcomes, as your Back-Up Plan advisor will have the benefit of working with your team who understand your situation, risks and goals from their own expert viewpoints.