As wealth increases, so does a high net worth client’s network of employees, vendors, consultants and advisors. These professionals, ranging from generalists (e.g. business manager, estate manager) to specialists (e.g. nanny, groundskeeper), keep the client’s life running smoothly through their expertise or services. However, this team can also be your client’s greatest threat.
Staff is one of the greatest—and most overlooked—risks for high net worth clients. Wealth managers must be wary of these exposures, and help uncover blind spots that could result in devastating personal loss.
Top Employee Liabilities
The inherent proximity, insider knowledge and trust granted to employees can leave clients vulnerable to risk. As such, top employee liabilities include:
- Employee theft. Whether it’s providing access to household keys or bank accounts, high net worth individuals can fall victim to employee theft and crime.
- Poor advising. Unqualified or misguided advice can cost clients a fortune.
- Reputational risk. An employee exposing or selling intimate knowledge about a client can damage their reputation, jeopardize their safety, and cause incalculable emotional and financial loss.
- Tax penalties. Improper designation of employees can result in an audit, owed taxes and even personal liability.
- Workers’ compensation fraud. A fraudulent claim, or insufficient coverage, can lead to legal and financial headaches, damages or assuming liability for an illegitimate injury.
Employment practices liabilities (EPL) and lawsuits. A disgruntled employee’s desire for financial gain or personal retribution could land your client in court. From accusations of discrimination or wrongful termination, to sexual harassment and inappropriate workplace conduct, your client runs the risk of significant financial and reputational losses.
Wealth managers, business managers and advisors of high net worth clientele must consider these risks when offering consultation.
Best Practices for Staff Risk Management
In short, the high net worth life—and home—must be run like a business. Advise your clients to consider the following:
- Draft job descriptions. Defined (and documented) titles, roles and responsibilities can serve as hiring criteria, will set a standard for staff management and reviews, and provide evidence in a wrongful termination case.
- Vet employees thoroughly. Too many clients have made poor hiring decisions based on recommendations from personal contacts. Subject all potential hires to a comprehensive evaluation, including a background check and reference check.
- Hire outside the inner circle. Blending the lines between friendship and employment is a dangerous, but frequent, practice. Clients should surround themselves with qualified and trustworthy advisors who can give them honest, objective recommendations.
- Require a non-disclosure agreement. All hires should sign a non-disclosure agreement to create an enforceable protection of your client’s privacy. Depending on the nature of the job and status of the client, NDAs should be considered during the hiring process.
- Establish employee handbook, policies and procedures. All information should be formally documented to protect the employer and clearly communicate expectations, policies and procedures to staff. These documents will serve a critical role in the event of an EPL lawsuit.
- Fulfill all legal and tax obligations. Make sure the client understands the legal difference between an independent contractor and an employee, and abides by the appropriate legal and tax employer requirements.
- Secure additional coverage. EPL coverage and other risk management measures are a wise reinforcement for unforeseen issues. (See more advice in my free downloadable guide.)
Whether the responsibility falls to an estate manager, business advisor or wealth management team, creating a professional experience for employer and employee should not be overlooked.
Parker Beauchamp serves as CEO and President of INGUARD. His personal portfolio focuses on clientele who require complex insurance and risk management strategies.