More Money, More Problems
The Distribution of Success
There is a direct correlation between money and problems, or wealth and complexity, that can require a specialized knowledge and higher level of expertise. To illustrate the concept, we begin with a bell curve representing the distribution of success in the population. On the left side of the curve are individuals who are “less successful” than average, and on the right are those who fared well. A very small percentage of individuals have achieved the status of "uniquely successful" and have amassed significant wealth. The uniquely successful have crossed a threshold into an unusual and unfamiliar situation – nobody can be fully prepared and knowledgeable about how to navigate this situation in life until he or she has been there and experienced it.
Using the same bell curve analogy for Financial Advisors, it's worth noting that only around half of all advisors are more capable than average, with only a small number ranking at the very high end of the distribution. Given that the world has different kinds of investors (and advisors), it's crucial for the uniquely successful population to properly align themselves with equally qualified advisors. Once an investor reaches this new level of success, the risks and opportunities they face are significantly different from those of the average investor. Since most advisors primarily work with the “more successful” clients, who’s needs are less complex, many advisors may not have the requisite knowledge or experience to effectively navigate the unique challenges faced by “uniquely successful” individuals. It's important to understand that the situation and challenges faced by uniquely successful individuals are vastly more complex and require a higher quality of knowledge and expertise to manage their wealth effectively.
The Concept of Complexity
For those who live on the other side of the line below, financial strategies tend to become more intricate as wealth increases. The Concept of Complexity chart below illustrates the direct and positive relationship between wealth and complexity. In fact, complexity increases inevitably and significantly as you move to the other side of the line. Uniquely successful people need specialized advice.
While average investors believe that reaching a high level of wealth or income will give them permanent relief from anxiety, this is not necessarily the experience for uniquely successful investors. The fundamental issue is average investors in their wealth accumulation stage are primarily concerned about their basic financial security – the question they need to answer is simple, “Will I be okay?”. Most Investors (and advisors) focus their efforts on this through standard portfolio management and performance measures since these concepts are tools used to achieve security.
Uniquely successful people know that pain and anxiety do not diminish as wealth increases. In fact, something very different happens - anxiety increases. While the anxiety on the left side of the U is the fear of being destitute and insecure in old age (primal fear), the anxiety on the right side is very different: it’s the anxiety of insecurity that comes with coping with a complex financial life. For wealthy families, complexity means they don’t know what they might be missing; they don’t know what they might be missing that could hurt them or that they could benefit from. As wealth increases, so do the risks and opportunity sets, but the necessary knowledge to manage them does not automatically accompany the complexity. In fact, the complexity increases more rapidly as wealth accumulates. Wealthy investors are constantly chasing after the knowledge they need to cope with the wealth they have amassed.
Our Value Proposition
Complexity automatically arrives when wealth is accumulated but the knowledge needed to make important decisions does not. And since most advisors do not work with clients on this side of the line, they don’t know how to navigate the situation effectively. This is our value proposition – we specialize in understanding what uniquely successful investors need to know to effectively handle the complexity of wealth. The uniquely successful should recognize that they are now living in a more complicated world, and they are probably missing some things that could hurt them (or that they could take advantage of). To understand the magnitude of these potential dangers and opportunities, please contact us to learn about our Complimentary Second Opinion.