The firm's managing director of business owners & entrepreneurs spoke to this publication surrounding the wealth preservation of individuals involved in modern tech companies.

“New-age” wealth holders are currently becoming influential in the financial world. These are entrepreneurs involved in 21st century companies e.g. owners of companies such as Facebook, YouTube and Instagram. As technology grows and evolves, more inventors are being allowed to develop new ideas which take the world by storm. These inventors make a large amount of money from these companies. Facebook owner Mark Zuckerberg is reportedly worth around $35 billion. As more of these inventors and enterprenuers start to make it big, it is likely they will need their wealth managed.

WealthBriefing interviewed John Younger, managing director of business owners & entrepreneurs at RBC Wealth Management, to discuss these “new-age” wealth holders, and he said that these entrepreneurs need a reserve because their technology-based company is only making money when it is in fashion.

“The Instagram and YouTube type of entrepreneur is interesting, but is very much a medium of the moment,” said Younger. “I think with those types of clients it is fundamentally important to advise them `when you can, you have got to put aside a bit of a nest egg', because in particular, that type of wealth generation is at risk, especially at risk of disruption of the next tech-based entrepreneur fad. These entrepreneurs have fairly complex needs and from a private client perspective, they will have unique needs compared to a family office or a corporate executive," he said.

These companies are only successful long-term if they adapt to the times. For every social networking forces like Facebook, there is a MySpace, which was a fashionable trend but failed to update its unique selling point as technology evolves, he said.

Younger, who joined the firm in 2016 after more than 20 years in financial industry, said these entrepreneurs should not look towards a second career if the company does collapse, but instead look to use their first idea in a different way.

“I think entrepreneurs will always be entrepreneurs,” Younger said. “Most of the clients who we have with us, entrepreneurship is in their blood. Maybe they will find a different direction and that pivot will take them to something new and interesting. If you said to a YouTube star: `why don’t you work for a financial institution?' It’s probably not going to be a suitable career choice," he continued.

“One of the things that they need is an experienced advisor in their lives who is grounded and has lived through different cycles. Sometimes if you are focused on your tech business, you lose perspective or insight. I think it is worthwhile when advising entrepreneurs, not to dampen enthusiasm, but to inject judgement and perspective on where things are, and the risks of putting all of your eggs in one basket. That’s where the wealth preservation discussion can come from," he said.

Segmentation
RBC WM has a large client segmentation operation, which includes five client segments; business owners & entrepreneurs, corporate executives, sports, media & entertainment, multi-family office, and retirees. This publication has previously spoken to RBC WM surrounding its range of client segmentation, including an interview with Sandy Swinton and Jason Turner about the firm’s sports, media and entertainment.

Within RBC, these “new age” wealth holders are part of the business owners & entrepreneurs segment. According to BNP Paribas Wealth Management’s 2017 Global Entrepreneurial Report, the average net worth of an elite entrepreneur is $14.92 million, and 45 per cent of these entrepreneurs indicated that their wealth stemmed from IT, online, mobile & digital development. Therefore these types of clients can be very valuable to a financial institution.

The managing director discussed how the firm manages and deals with these types of clients.

“As part of our segmentation strategy, we find it very helpful when you have wealth managers working with a number of the clients who have similar backgrounds and experiences in how they generated wealth,” said Younger. “We find is that one of the challenges that these clients have, is that they never have really focused on wealth preservation, on creating that nest egg. They have always focused on running a business. The biggest challenge for these clients and it’s a challenge that extends to some of the more established business owners, is that they have to detach themselves from the business and think about putting some funds aside for capital preservation,” he said.

In BNP Paribas’ 2017 report, it found “Millennipreneurs”, entrepreneurs born after 1980, were most likely to have their wealth created by information and technology. Younger believes Millennials and new-age wealth holders should not be categorised together.

“I think it’s difficult to categorise clients along demographic or age brackets in a uniform manner. Obviously clients all have their individual needs,” said Younger. “There are some people who you come across who may be demographically a Millennial but have characteristics more akin to successful entrepreneurs of Baby Boomers or Next Gen, and vice versa. I think clients are more successfully attributed to categories not based on age but based on profession, which can inform their outlook towards risk and their investment appetite," he said.

Lasting wealth
Due to the unknown nature of these businesses, whether they adapt and grow or are only a trend for a number of years, entrepreneurs have to find a way to make their wealth last a long time. As these entrepreneurs look to expand their businesses, they may not look towards saving for the future. Therefore questions are asked whether the money will last their lifetime.

Younger believes that wealth preservation is a hard conversation to have with a entrepreneur, but a necessary one to have.

“It depends on the individual, and in some cases they have made enough wealth to last generations," Younger he said. "They can afford to take risks with their wealth. The one thing that is a tricky conversation with a successful entrepreneur is an honest conversation about business risks. We’ve seen examples of successful entrepreneurs who have hit it big, and have blown it," he said.

Younger added: “One of the things that is always a discussion that you have with clients, whether they are stars of the fintech world or if they are a family office who makes tyres in Leeds, is: how much is enough? For most of the clients who we deal with, they have enough to last their lifetimes living very comfortable. For young, tech entrepreneurs, the reality is that most of these people are creative types or dreamers. They may also want to think beyond their business, in terms of the legacy they want to leave. They may have enough to last a lifetime or lifetimes, but I don’t think any of them will be satisfied both from a wealth and a business perspective to sit on what they have and move forward.”