When one of the most ubiquitous descriptions of the yachting lifestyle is: The two happiest days in the life of a yacht owner are the day he buys it and the day he sells it, what are we to conclude about the experience of yacht ownership?
Amazingly, that seems to be the conventional wisdom. How has that become acceptable? Fortunately, now there are alternatives.
Clearly for most boat and yacht owners, something turns a good experience into something very ugly, and fairly quickly.
How does one's dream become a nightmare for so many, so quickly, so consistently?
To prevent your dream from becoming your worst nightmare, ultimately you have to make the right decisions. And the earlier in the process, the better. As economists we know that the quality of one's decisions is often determined by the quality of one's information.
That's one way we can help you keep your good experience from turning ugly.
Our ability to provide proprietary programs and customized, comprehensive and coordinated solutions for the unique economic and financial objectives of each individual yacht owner – enables us to offer substantial long-term value to yacht owners - long after the enthusiasm of the initial yacht transaction has waned.
One of the problems with conventional yacht ownership is that in the passion and excitement of closing the deal, too often, emotions rule. That's often when the plans of putting the yacht in charter are contrived to help defray some of the costs and close the sale.
The buyer and the broker want to close the transaction as soon as possible for the optimum price. However this rush too often results in remorse, regret, unnecessary costs, and expenses – and an overall negative long term experience.
It is not unrealistic to consider that some brokers and “advisors” may not always have interests that are 100% in sync with those of the prospective yacht owner.
The yacht broker gets paid his commission and can walk away from the transaction, while the new yacht owner has to live with the consequences. In fact, yacht charter is a prime example of such possible divergent interests with potential ugly outcomes.
Most yacht owners would prefer NOT to charter their yachts and only do so as a way to help defray some of the costs and expense of yacht ownership. It is really little more than trying to make the best out of a bad situation. Hopefully owners of charter yachts are properly warned of the risks.
If a yacht owner desires, we can usually craft financial and wealth preservation strategies that are far superior alternatives to traditional charter so that the yacht owner no longer needs to charter his yacht to defray the costs of yacht ownership.
However our strategies while great for the yacht owner, may be less so for the yacht charter brokers as it potentially deprives them of their "free" inventory of yachts to charter out.
Unfortunately, all too often the same yacht brokers receiving commissions on yacht sales are also being compensated when the yacht owner charters the yacht in the future. In fact, many yacht sales are closed by the broker explaining how the purchaser can place the yacht in charter with the broker's company as a way to help defray the operational costs.
Not to be conspiratorial but one has to recognize the obviously flawed structure and inherent conflicts of interest.
The yacht broker / charter broker makes a commission on the purchase, makes a nice net profit while chartering the yacht out, and then makes another commission upon the sale of the yacht. The yacht broker makes money while convincing someone else to fund all the costs of his charter inventory - in exchange for some limited use of the vessel.
No wonder the status quo is slow to innovate. The current model is good for them.
So given how some “bad” brokers and advisors actually feel and talk about their clients, remember the Rip Off Factor, a yacht owner has to wonder if there was an opportunity to own a yacht that would be net worth neutral or even profitable WITHOUT the need for chartering, one has to wonder whose interest the broker would put first?
Would your broker even tell you about such a possibility? Would you want him to?
If you want to hear every possible opportunity to enhance your yachting experience, it is up to you to make sure your broker and other advisors know. You need to make them comfortable in presenting you with possible opportunities and that you will not penalize them for their creativity and efforts when things may not pan out as originally hoped.
Most brokers and advisors place great value on their client relationships. They take great care not to jeopardize their position with you - their client. Nevertheless, it is just human nature that when presented with something new and innovative that might help their client, but could also potentially run counter to their own self-interest, many brokers and advisors would not "rock the boat" so to speak and simply default to the status quo - even if it may not be in the best interest of the client.
Lest you think we are singling out yacht brokers, CPAs have admitted to such behavior. More than one CPA has admitted they never recommend any strategy that could help their client - no matter how good it may be for their client- if that strategy was initially suggested by someone else.
As they explain it:
"Recommending a third party's new investment or tax strategy is a no win proposition for me.
If I admit the value of the new strategy as a good idea and recommend it, and it is successful, the third party gets all the credit. The client may start to wonder about my abilities and why I didn't think about it and suggest it before this other third party. My client may start to calculate how much money he could have saved over the years if I had suggested this new strategy to him sooner - and how much those savings could have compounded to over the years of not implementing this "new" strategy. My client may also start to wonder what else I may be missing or overlooking.
I stand a very good chance of losing an existing client by recommending any strategy or opportunity offered by someone else - even when that strategy turns out to be successful, profitable and performs exactly as expected.
On the other hand, if I go along, allow or recommend a strategy or opportunity offered by some third party, and the opportunity fails to meet expectations or has any other problems - for whatever reason, I get the blame for allowing the client to participate. The client wonders about my competence.
For me, there is nothing good that can come from it, and I loose either way. Thus I always advise all my clients against all ideas, strategies and opportunities that I don't present first or that are presented to my clients from some third party."
Thus consider a very reasonable yachting scenario for example where someone purchases a $10,000,000 yacht. Keeps it for five years spending another $5,000,000 over the period on operations, maintenance, etc. and then is able to sell it after five years for $5,000,000. This yachting experience cost the yacht owner $10,000,000 over five years.
Now here is where it could get ugly. Potentially very ugly.
What if this yacht owner subsequently learns that at the time he originally purchased the yacht that the yacht broker representing him in the purchase knew of other potential purchase structures and strategies of income generation and risk, cost, and expense mitigation opportunities - excluding chartering back through his yacht brokerage company - that could have protected the yacht owner against the future loss of his $10,000,000?
The yacht owner subsequently files suit against the yacht broker and the yacht brokerage company for violation of their legal obligations as fiduciaries to recover his $10,000,000 loss which was the result of the yacht broker’s breach of his fiduciary responsibility.
The yacht owner's attorney being a clever fellow, then files a class action suit on behalf of all the yacht brokerage's clients that were not told of the similar opportunities. So now the litigation could be hundreds of millions of dollars in damages!
The broker responds he did not advise the yacht owner about the other potential opportunities to make his yacht ownership net worth neutral or profitable because he was not an expert and not qualified to opine on the validity of the opportunities and was afraid of what his client - you the yacht purchaser might think. The broker claims that the fact that he might lose future yacht charter commissions had nothing to do with his failure to disclose the other opportunities that would nullify the need for future charter services.
So, what would you do, if you were the yacht owner in the above scenario?
If you learned that your yacht broker knew of a way that could have saved you $10,000,000 when you purchased the yacht but did not tell you about it, because he was afraid of what you might think or that you might not need his charter service to defray some of the future expenses, what would you do?
To avoid such an ugly scenario, you should let your advisors know that you expect to be advised of all opportunities that could possibly make your yachting more economical and enjoyable.
Make it clear that you engage them for their specific expertise only, and don't expect them to opine on matters beyond their discipline. For example you don't expect a yacht broker to opine on tax matters, or an attorney to advise on how to make a profit from yacht ownership. They should simply pass all opportunities along for your personal consideration. That you and your team of other advisors with their specialized expertise will make the final determination of what is appropriate for you.
That if your current advisors knew, surely they'd have told you already- wouldn't they?