7 Ways HNWIs Sabotage Their Own Backup Plans – Part I

Reasonable Doubt
With David Lesperance

A contrarian expert on contingency plans for the wealthy delivers uncomfortable truths.

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In almost three decades of assisting High Net Worth families with their back-up plans, I have often observed certain behaviors that undermine their ability to fully achieve their goals. This two-part article outlines seven of the most common self-sabotaging behaviors, and the lessons to be drawn from them.

LESSON 1: Wasting time costs money: 

I once had a US client who was seeking a Citizenship-by-Investment (CBI) in order to legally sever his future tax liability. The client assigned an assistant to gather all the necessary documents. However, there was one item that required the client and their spouse’s participation – passport photographs. The assistant advised that every time she tried to arrange for the photos to be taken she was put off. Over two months was lost on this one outstanding obstacle. 

I did some simple math to estimate how much this simple delay was costing. Assuming similar income and capital gains from the prior year I came up with a “Daily Tax Burn Rate” which, when multiplied by the 60 wasted days meant the real world consequence was several hundred thousand dollars in avoidable US tax. The assistant called after my email was received to say that the photo session was scheduled for that night.

Read also: Wealth Planning and CBI Are Separate Worlds, But This is About to Change

In a similar vein, many times after proposing either a Residence or Citizenship by Investment strategy, the clients simply disappeared. When they re-appeared a year or two later I had the unpleasant task of informing them that the programs had changed or closed, the costs had increased substantially, or the timing no longer fit the original schedule.

When a qualified and experienced advisor proposes a strategy thaht meets your goals and objectives, you should immediately decide whether or not you want to proceed. If you decide to proceed, then execute promptly. Procrastination can be costly, or worse.

LESSON 2: Don’t silo advisors thinking it will save money; it costs money! 

HNWIs usually have a team of advisors that includes legal, accounting and financial experts. Unfortunately, even these successful clients may not appreciate the complexity and interconnectedness of an effective back-up plan. To avoid “running up the clock” some clients can be tempted to use themselves as the filter and gatekeeper of information. This can be a costly mistake. 

To counter this inclination, I suggest a “staged project fee basis“ where each stage is clearly defined and the price per stage is fixed, with no additional charge for my interacting with their other advisors. In addition to providing the client with comfort and predictability, quite often this mode of open interaction helps to uncover potential negative ramifications in another area.

This approach encourages open interaction among a client’s advisors and results in a more refined strategy with lower costs and higher quality of outcome. 

Read also: The Generation Game – Can CIP-Investors Really Pass Citizenship On To Their Descendants?

LESSON THREE: Smart clients or advisors cannot reproduce years of focused experience: 

HNWIs tend to be intelligent and worldly. Unfortunately, this sometimes leads them to mistakenly believe that preparing an effective back-up plan can be a “DIY” project. And whether the “Y” is the actual client or one of their existing advisors is irrelevant.

DIY using the Internet

Those attempting a DIY back-up plan usually turn first to the internet. This gives rise to three significant problems – the quantity of information, the bias of the information and the quality of the information. 

• The first problem of the sheer volume of information immediately becomes apparent. A Google search of “Second Citizenship” produces almost 110 MILLION hits.

• A closer look at the first few pages of search results reveals the second problem – most of the information on the internet has been placed by CBI and RBI salespeople who paid for premium search placement. Their sole goal is to sell you the “product” which makes the most money for them. Whether a certain immigration product is appropriate for the reader does not enter the salesperson’s mind, pitch or internet content. 

• The third problem should also be of concern for any would-be DIYer.  In an area where there is constant change, there is no assurance the information is correct, up-to-date and supported by the current law.

An experienced advisor is going to be able to outline all the applicable issues and note all the potential landmines in mapping out a path that will meet the client’s unique needs. Furthermore, a qualified advisor is constantly examining all the new citizenship/residence and tax planning products that arrive on the market. Their experience allows them to quickly separate what potentially works for each specific and unique client, and what doesn’t.

Just as doctors are very concerned about their patients self-diagnosing on the internet, DIY is not the way to go when designing a back-up plan that will protect you and your family for years to come. 

Our Residence and Citizenship by Investment Company Directory contains more than 800 firms across the world that can assist with applications to investment migration programs.

DIY using Friends

Another potential source of misinformation is when a friend has bought a particular CBI or RBI and others think that they can save money by simply copying their friend’s strategy. This is dangerous for a number of reasons. The first danger is the underlying assumption that the other person’s strategy is actually effective. Defective planning is never uncovered until a Back-Up Plan is tested and catastrophically fails.

Secondly, the friend’s family history, concerns and goals are not the same. Therefore the friend’s Back-up Plan strategy, even if appropriate for them, rarely translates well to the any other family. 

One of the truths that I have learned in my almost three decades is that immigration, citizenship and tax laws change constantly. RBI and CBI programs come and go, and laws relating to lineage and dual citizenship are constantly in flux. The range of choices available today may be completely different from what was available even a year or two ago. As the expression goes, the devil is in the details (which a DIYer often fails to spot). 

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