Wharton@Work

June 2019 | 

Ultra-High-Net-Worth Investors and Their Advisors: Gaining Essential Knowledge at Wharton

Ultra-High-Net-Worth Investors and Their Advisors: Gaining Essential Knowledge at Wharton

One of the lesser-known outcomes of the ’08 financial crisis is a shift in the way family offices make their investments. Since that time, direct investing in the United States has increased 175 percent. Globally, it increased 210 percent. That shift means ultra-high-net-worth investors and those who advise them need new knowledge and skills, including those around valuation, deal origination, and financial and operational due diligence.

For over a decade, Wharton Executive Education has stepped in to fill this need. Together with the School’s renowned finance department, it offers a series of programs to help these investors navigate the increasingly complex environment of investment opportunities.

Wealth Preservation

Charlotte Beyer, founder of the Institute for Private Investors, developed Private Wealth Management Program with the Wharton School in 1999. The week-long, first-of-its-kind academic program has advised more than 1,000 members of ultra-high-net-worth families and individuals.

Wharton finance professor Richard Marston, who has served as academic director of the program since its inception, says the task of preserving wealth is challenging, especially for those who bypass intermediaries such as brokerage firms. “In Private Wealth Management, we teach all elements of investing, including how to choose a portfolio to meet family objectives; how to understand the different types of investments in that portfolio including stocks and bonds, real estate, private equity, and hedge funds; and how to monitor that portfolio to ensure top performance.”

Creating and Managing a Portfolio

Another essential program is Investment Strategies and Portfolio Management, which covers every aspect of the investment process, including diversification, asset allocation, and portfolio construction techniques. Participants also learn a framework for analyzing investment strategies and how to craft an investment policy statement that specifies an objective (for example, earn a return of 7.5 percent with the least risk possible). “First you have to consider asset classes, and the policy statement might even spell out which classes can and can’t be in the portfolio,” says Geoff Gerber, who teaches in the program. He stresses that in addition to asset classes, investors must consider diversification within those classes.

“Many people stop at the asset class level,” says Gerber. “There has been tremendous growth in the number and types of investment opportunities, and investors can be challenged just keeping up with them. That’s one way our program has changed over time. When I started teaching in it 30 years ago, portfolios were mostly stocks and bonds. Now as new opportunities arise, such as private equity and derivatives, we bring in experts who provide a wealth of information and insights into when and how to consider them.”

Investing in Real Estate 

Another increasingly attractive investment opportunity is real estate. But the broad, complex asset class has unique advantages and pitfalls, risk and return structures, and investment strategies. Todd Sinai, a Wharton professor of real estate, business economics, and public policy, says that while real estate often promises to yield a stable dividend and some capital appreciation, there’s a down side: “the potential for higher risk, and the difficulty of parsing it out.”

Parsing out that risk is a pivotal theme of the new Assessing Commercial Real Estate Investments and Markets, which Sinai directs. The program explores the pros and cons of various ways to invest, from direct investments to REITs, private equity to real estate debt. Participants learn how to balance risk and return in real estate investments, evaluate potential real estate investment partners and opportunities, and understand the drivers of real estate markets and the effect of changes in the economy and tax code.

Client Psychology

Recognizing that knowledge of asset classes and portfolio management is not enough for those advising ultra-high-net-worth clients, the Wharton School joined forces with the Center for Financial Planning (CFP) to design Client Psychology. The program helps financial planners and advisors become more client-centered by using the latest advances in neuroscience and behavioral finance. It also covers evidence-based decision making; communication skills; investing habits across generational lines; and elements of clinical psychology including spending, saving, and money disorders.

“What is important for financial planners and advisors to understand is that the lens through which the client sees the world is different from yours,” says Charles Chaffin, director of academic programs and initiatives for the CFP Board Center for Financial Planning. “You need to be responsive to that. You need to listen and find ways to better understand.”

Ultimately, the goal of the program is “not to make planners become a psychologist by any means,” he notes. “But that being said, there’s an element of counseling and marriage and family therapy. All these things under the banner of client psychology are really critical.”