The products. For this client segment, tax efficiency, portfolio diversification, and bespoke solutions loom large. Two useful elements when building the core component of an HNW investment strategy are:

Separately managed accounts: SMAs provide the ability to construct portfolios using individual stocks and bonds with an institutional money management overlay.

ETFs: These products provide access to diversified baskets of investments while maintaining the tax-efficient characteristics of stock ownership.

HNW clients tend to have more flexibility for tolerating a lack of liquidity. This dynamic opens up the potential for including strategy-specific active managers that offer unique investing approaches, as well as alternative investments like the following, in the portfolio construction process:

• Hedge funds: Actively managed pooled investments with varied and flexible strategies (i.e., long/short, derivatives, fixed income, and currency), hedge funds can provide additional diversification to a core portfolio while offering the potential for outsized returns with low correlation.

• Structured products: These custom investments often offer downside protection tied to other investments’ performance. They can be built around a concentrated position or provide an insurance element in volatile markets.

• Private equity and venture capital: Investment into a firm offers majority equity ownership while strengthening an existing business. These opportunities are attractive because they provide access to an investment on the ground floor or in growth mode that is not publicly traded.

• Real estate investment trusts: As real property investments with an income component and long-term appreciation, REITs are a great way to add a non-market or fixed income-correlated income stream with upside potential.

• Initial public offering: IPOs provide access to companies that are just becoming publicly traded, offering growth potential and momentum.

The risks. With any investment strategy, there are risks that need to be considered, including investment, equity concentration, and personal liability risks. Managing these risks can be accomplished through asset allocation and diversification, insurance, trusts, and other solutions.

For HNW clients transitioning to the next phase of life, it’s not a matter of if they can make it through retirement but how to position their assets to reduce taxes and secure their legacy. Be prepared to address generational wealth transfers, efficient income distribution, and trust planning.

For trusts, you’ll want to work alongside their estate attorney and CPA to ensure that:

• The goals for each trust align with the trust vehicle selected

• Target tax rates for distribution are discussed

• The trusts are following best practices and current law for their lifetime exclusions

• You’ve selected an appropriate and independent trustee(s) to carry out the client’s objectives

The trust review process offers a chance to strengthen trustee engagement and determine whether a corporate trustee is appropriate. Here, you might consider:

• Working with your firm partner to conduct an independent trust review (if available)

• Engaging a personal trust service provider (At Commonwealth, advisors can take advantage of our relationships with firms like BOK Financial and Fidelity Personal Trust Company)

• Completing additional education programs (e.g., CFP, CPWA) to expand your knowledge base

What do HNW clients want when it comes to their legacy? Any talk about this subject is bound to bring attention to the next generation. So, you’ll need a full picture of next-gen goals and wishes to actively engage them. Here’s how to get started:

• Facilitate family conversations. This process could begin with a meeting of the immediate family, with the goal of gaining an understanding of the values your client wants to impart and how those could be retained across generations.

• Include stakeholders in their parents’ legacy vision. By providing an inclusive setting, your clients can express their vision while also giving space to the next generation to voice their aspirations and concerns. The end result will be both a lasting legacy and a financial plan that sustains through multiple generations.

• Aim to have a direct relationship with family members, depending on everyone’s comfort level. Educate the next generation about the dual role you can play, as both the steward of the family’s wealth and a resource for their individual financial needs. Some advisors, for example, may strictly manage what descendants are allowed to spend on a monthly basis.

One of the best ways to reduce taxes and provide a benefit to organizations near and dear to clients is through charitable planning. Besides making outright gifts (e.g., cash, stock, or even other assets) to qualified 501(c)(3) charities, a well-devised plan will enable them to give back in a way that aligns with the family’s goals, across multiple generations, and have control of the timing or the deduction.

Such a plan would likely include:

• Donor-advised funds: For these charitable investment accounts, the client becomes the grant advisor on the funds and receives a deduction for transferring cash or appreciated securities into the account.

• Charitable remainder trusts and charitable lead trusts: This trust structure provides a stream of income back to the grantor (or to the charity in the case of a charitable lead trust) over a specified number of years or for life. The charitable deduction received is based on a calculation of the anticipated remainder or the stream of income for charitable lead trusts.

• Qualified charitable distributions: Here, gifts are made directly to a charity from an IRA up to a maximum annual limit of $100,000 (indexed for inflation under the SECURE 2.0 Act). The amount transferred can be used to offset the client’s required minimum distribution from their retirement account for the year. While there’s no tax deduction available for making the gift, there are also no taxes due on the distribution.

Another avenue to demonstrate value for HNW clients is by addressing both sides of the balance sheet. Lending can be a wonderful way to provide leverage for major purchases, as well as bridge loans for tax bills and real estate investment. These lines can be either secured by existing portfolios or unsecured.

HNW clients who run a business can benefit from insights on how they can continue to recruit, retain, and reward key employees. Here’s how to help:

• Ensure that they have retirement plans in place that incentivize their top talent to stay.

• Offer options for adding on to the standard offerings of 401(k), profit sharing, and cash balance plans. They could also consider more involved solutions such as stock option, employee stock purchase, and employee stock ownership plans.

• Encourage succession planning. Many business clients don’t have a formal plan in place to monetize or transition their business. By engaging them in this type of planning, you can position yourself as a trusted resource throughout the process—and help them preserve their legacy.

It goes without saying that financial planning software can be key to mapping out different goals and planning scenarios for HNW clients. It also provides an easy opportunity to demonstrate where you add value. Access to the right technology tools can help you:

• Take in all facets of your client’s financial situation

• Tell the whole story, illustrating where they are today and where they’re headed

• Demonstrate that you understand what’s important to them, as you work together on goal planning, the purchase or sale of a business or real asset, executive compensation options, or flow of assets through their trusts

Some of the market’s top financial planning tools include RightCapital (cash flow-based financial planning software that includes retirement planning, student loan debt planning, and social security optimization), eMoney (cash-flow planning software tool with tax and estate planning modules), MoneyGuidePro (goal-based financial planning software), and Holistiplan (tax planning software).