Mind the Wealth Gap!

Despite having very high earnings, many executives have a wealth gap that has the potential to adversely affect their financial position. In simple terms, the ‘gap’ is the difference between what you have and what you actually need or desire, to maintain your lifestyle should your personal circumstances change.

In this article, I describe what a wealth gap is, the structured approach behind identifying it and how you can use your wealth gap insights to make decisions about your financial and wealth future.

Understanding if your wealth gap is financially comfortable, or not is a discussion I commonly have with my executive level clients.

For busy executives, who are usually in the thick of their professional and personal lives, should anything go wrong they need to know they can meet their obligations including their considerable expenditures during this stage of life.

My first step is to work through different what-if scenarios and how unforeseen situations could directly affect an individual or someone close, such as their spouse and children.

In my experience when advising business leaders and executives, their inherent sense of risk and reward that often drives their career success can carry over into their personal life where it can sometimes be more a case of risk to life and limb.

But then, sometimes even the most benign mishaps can seriously affect financial circumstances.

Take for example, cricketer Glen Maxwell, who recently wowed the world with a double century in Mumbai, hit the winning runs in the World Cup final and who was also named at #6 on GQ Magazines 2023 highest paid cricketers list.

This time last year his fortunes were looking considerably different when he slipped and fell in his backyard. He broke his leg and it put him out of the game (and his workplace) for three months.

Presumably for Glen, access to quality medical and rehabilitation care (despite a second golf-related freak accident earlier in the year) got him back to the crease and while I’m not privy to his financial circumstances, we can assume his “what-if” wealth plan paid the bills and covered his lifestyle when he was unable to earn.

Consider the vast number of so-called freak accidents any one of us could suffer and the personal, professional and financial consequences of being out of our game for three months!

Understanding the extent of your wealth gap is an important key to being financially protected when you’re unable to earn.

For the executives I advise, determining their wealth gap is usually enlightening and comforting.

Comfort comes from knowing (a) what is enough and (b) whether the enough amount allows them to remain financially unaffected in the event of unforeseen illness or injury and being enlightened of the financial facts, allows informed decision making. This can include deciding to cancel unnecessary personal risk insurance policies and remove premium costs associated with it.

Conversely, if there is a wealth gap between needs and assets, and the gap has potential to cause financial discomfort, the information discussion serves to provide options that may include bolstering or amending the terms of existing personal risk insurances or adding extra cover to fill the gap.

If personal risk insurance is appropriate, and possible (given occupation, age and pre-existing health conditions affect insurance applications) I ask my clients to complete a short form questionnaire.

This identifies potential lifestyle, occupational or health considerations that may impact an application. It also enables me to be well informed when consulting with insurers as executives, particularly directors of large consultancies, often have complex risk insurance requirements that can require vast insured amounts and specialist underwriting, that some insurers do not have capability to fulfil.

(I recently wrote an article about the personal risk insurance requirements for directors of a large mining and resources consultancy, and the specialised nature of that insurance process which you can read it here.)

Once I have responses from insurers, I am in a better position to understand what the gap may cost to fill.

Using an interactive process, I work through the options with my client to reach an agreement in principle, then explain the proposed strategy in detail and formalise our agreement of that strategy before working toward implementation.

While personal risk insurances can be effective in filling a wealth gap, financial protection also includes matters of asset protection and structuring your personal affairs so they are separate from business matters and your legal responsibilities as an executive or director.

Implementing an estate plan with a clear vision of the financial legacy you wish to leave should you pass away, in the most tax efficient manner possible and protecting it from legal claims, is also part of a thorough wealth protection approach.

To find out more about the wealth gap and holistic financial planning based on a collaborative advice team approach, that effectively manages the financial complexity affecting high earning executives and business leaders, please give me a call on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au to request a call back.

To learn more about James Marshall, visit this link.

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.

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