Managing the lifestyles of high-net-worth clients isn’t all glitter and gold. While these engagements offer certified public accountants (CPAs) intriguing and lucrative opportunities, they also present heightened risks.
When wealth, fame, and vague boundaries collide, one misunderstanding can ignite a high-profile, high-dollar firestorm. According to historical analyses of accountants’ professional liability claim data, disputes with high-net-worth or high-profile clients are a common driver of claim severity. High-net-worth clients often rely heavily on their advisers, sometimes expecting support that goes well beyond traditional accounting services. This reliance, coupled with the complexity and visibility of their affairs, means CPAs and advisers must be especially vigilant in managing these challenges.
Here are eight tips for serving high-net-worth clients.
Before taking on these types of clients, conduct adequate due diligence to understand who you’ll be working for and what’s expected of you. As part of this process:
Notably, high-net-worth clients may request that services be rendered to multiple family members and trusts. Because CPAs may be asked to advise on transactions or structures that could benefit one family member over another, potentially leading to disputes or allegations of bias, it’s important to establish clear policies for managing conflicts of interest.
Some high-net-worth clients may expect broad, informal support on anything from tax planning to concierge services. Therefore, it’s important to clearly define and document the terms and conditions of the engagement, the scope of the services being performed, and the responsibilities of the client. When the scope of services isn’t clearly documented, it’s easy for clients to misconstrue what services you’ve agreed to provide.
Claims can arise when annual engagement letters aren’t updated or revised, leading to scope creep or unclear responsibilities. During the engagement, services may evolve or expand, so be sure to document any changes in the scope of service.
When working with high-net-worth clients, it’s important to engage in regular, documented communication to keep expectations aligned. Try to maintain a healthy and appropriate professional distance from the client and be careful of informal discussions to avoid potential scope creep.
Having an annual engagement letter enables you to include other protective provisions to help insulate your firm from risk. Historical professional liability claims data shows allegations often include mismanagement of money, poor tax or investment advice, and embezzlement. The complexity and scale of these engagements mean mistakes can have severe financial consequences. To reduce your potential exposure, consider including language in the engagement letter that limits the types of damages covered to direct damages only and caps damages at a specified amount, such as a multiple of the fees paid. Also consider alternative dispute resolution options to help avoid protracted (and public) litigation.
High-net-worth clients may travel frequently or be regularly unavailable, expecting their CPAs and advisers to make day-to-day decisions on their behalf. If you assume such authority, you may expose your firm to risk. Some professional liability insurance policies limit or exclude coverage for management duties, which can leave your firm vulnerable if a claim arises. If you agree to make decisions on the client’s behalf, document the scope of decisions within your authority and consult with an experienced professional liability insurance agent to ensure you have applicable coverage.
High-net-worth client engagements are often managed by a senior partner with minimal oversight from others in the firm. The temptation to treat a high-net-worth client’s interests as paramount may threaten professional objectivity. Therefore, it’s important to implement firm controls to monitor relationships and performance of services, even for senior partners. Additionally, ensure all staff on these engagements are supervised and adhere to applicable professional standards.
Remember, a single misstep, whether a data breach, compliance failure, or dispute, can damage the reputation of the client and the firm. Make sure the engagement team stays current on regulatory changes affecting family offices, tax law, anti-money-laundering standards, and data protection regulations.
At the inception of a dispute involving a high-net-worth client, inquire, listen, and learn as much as you can about what’s motivating the claimant. Until you know what’s driving their passion to pursue a claim, you can’t determine an appropriate path toward resolution.
When you understand what the claimant really wants out of a dispute, you can get creative with resolution strategies that can be seen as a win-win by the client. For instance, this might mean some element other than just monetary compensation, such as an apology, and/or other components that don’t necessarily entail giving money directly to the client, such as charitable contributions or scholarships in their name.
When dealing with these disputes, keep in mind that high-net-worth clients often have the time and financial resources to pursue protracted litigation and may not feel the same anxiety or pressure from the process as most defendants. They have the means to hire aggressive legal counsel who can drive up litigation costs through protracted pleading and discovery tactics. Such methods are often intended to delay the proceedings in hopes that they’ll financially outlast the defendant professional services provider.
Another factor to consider is that an underlying transaction involving a high-net-worth client can have a significant amount of complexity that can make the determination of right and wrong a gray area. Meanwhile, in some cases, arbiters of disputes (e.g., mediators, arbitrators, judges, and juries) can become fixated on the client’s wealth, fame, or celebrity, which can cloud a realistic assessment of liability and damages.
In addition to monetary losses, a dispute with a high-net-worth client may also attract media attention and adversely affect the firm’s reputation. If this happens, make sure to manage the public relations angle and articulate your message, not only as a “sword” to assist in the resolution of the matter but also as a “shield” to help protect the firm’s reputation.
No doubt, serving high-net-worth clients comes with a high obligation to manage risk. By understanding the client’s needs, defining the scope of services, communicating consistently, and preparing for potential disputes, CPAs can better protect their firms and themselves while delivering the high level of service and attention these clients expect.
This article is provided for general informational purposes only and is not intended to provide individualized business or legal advice.
