How wealth managers are winning business with the ultra-wealthy

Creating trust based on personalized information can be a real differentiator in this market.
By Morningstar |  29-03-17 | 

Building client relationships can be a challenge—but none are quite as challenging as breaking through to high-net-worth clients. James Carney, head of ByAllAccounts and RIA software, a subsidiary of Morningstar, Inc. sat down for a conversation with David Friedman, ex-president of Wealth-X, to talk about what it takes to reach this highly-coveted market.

Money in Motion

David sees that the money of America’s richest is in motion, with one in every three ultra-high-net-worth individuals reportedly looking to change their asset manager or wealth advisor. “Wealth is an intimate conversation and therefore centers on trust,” he says. “Platforms, brands, and products have become commoditized, making them less about the individual relationship.”

Building client relationships is a battle for hearts and minds. If your quarterly review is only about portfolio performance, you are setting yourself up to be easily replaced. Successful advisors must offer an exclusive experience for the ultra-rich.

How can you develop and reinforce trust? Both David and I feel it calls for knowing your clients and prospects well. You must understand each individual—their background, career history, likes, and dislikes—and engage with them in a way that is relevant to their interests, cares, and hobbies. If you really want to connect with high-net-worth clients, you will have to learn to be passionate about their passions.

The Realities of Serving the Ultra-Wealthy

While many advisors I speak with dream of serving the ultra-high-net-worth investor, it can be more complicated than imagined. Ultra-high-net-worth individuals typically expect excellence in all areas—from the breadth of your product offering to detailed reporting—and a high-touch service model. You may also need to become involved in intricate family dynamics and have the capabilities to handle family governance, estate, regulatory, and tax issues.

If you are looking to target this segment for the first time or expand your business, you should begin by assessing what you need to run a successful operation. Among other things, I believe this includes:

  • A holistic approach to investment management that takes into account all of a client’s assets
  • An approach to asset allocation that provides attractive risk-adjusted returns using strategies customized for each client’s investment goals and risk tolerance
  • Timely and comprehensive performance reporting
  • The ability to provide investment advice on retirement accounts
  • Support for tax and legal issues
  • A proactive, high-touch service model

If you can meet these requirements with your firm’s resources or in partnership with other professionals, you have an opportunity to serve ultra-high-net-worth clients.

Next, you should consider the type of ultra-high-net-worth individual you would like to serve. Their characteristics, needs, and demands can vary enormously, depending in part on how they acquired their wealth. Entrepreneurs, for example, may be more interested in financing acquisitions to expand their businesses, while those who have inherited their wealth may be more interested in strategies for transferring wealth to the next generation. As with any prospect group, matching their needs with your strengths and the culture of your business will help you find the right fit for a long-term, mutually beneficial relationship.

When you are ready to start reaching out to prospects, consider following a simple three-step process:

Step 1: Size your market opportunity and determine where the ultra-high-net-worth individuals you plan to target are based.

Step 2: Do your homework before you meet with any candidate so you can relate on a personal level and start to build trust immediately.

Step 3: Manage your existing clients’ social capital by uncovering who they know. It will make it easier for them to refer you to the specific targets you have in mind.

Step 1: Size Your Market Opportunity

Wealth-X estimates that the global market of ultra-high-net-worth individuals has now expanded beyond 185,000. While about 33% live in North America, 29% in Europe, and 23% in Asia, the rapid growth of wealth in developing Asia may soon change this picture.

Within the U.S., California has 18% of the nation’s ultra-high-net-worth individuals, which is not surprising based on its size and wealth-generating regions like Silicon Valley. New York follows closely behind with 13%. In total, the top five states (California, New York, Texas, Florida, and Illinois) are where you’ll find more than 50% of these individuals.

Cross-referencing this data against your current base of ultra-high-net-worth clients will help you assess your market share and the untapped opportunity within each region.

Step 2: Do Your Homework

One of the key ways to reach ultra-high-net-worth individuals is by helping them clearly define life priorities so they can use their wealth for things they consider truly important. “To do this effectively,” says David, “you need to be familiar with who they are to steer the conversation. This also helps you connect with them on a personal level and establish a deeper relationship. Most importantly, showing you took the time to understand them helps build trust from the start.”

One investor said, “If you walk in the door and start telling me about what products you have, my eyes will glaze over. If you walk in and speak to me about the 1985 Rolls Royce Phantom VI, you’ll have me for an hour—and I’ll want to meet you again.” It’s about doing your homework and creating unique experiences based on each person’s passion and hobbies.

“This knowledge also helps you avoid making mistakes that can derail things,” says David. “We knew an individual who was donating a significant amount of money to a particular charity in support of an illness his young daughter had. If an advisor didn’t know this and started to suggest different giving opportunities, it would have cut the conversation short.”

Step 3: Manage Your Existing Clients’ Social Capital

“There is little cold calling in the ultra-high-net-worth space,” says David. “New business is almost all referral-based, whether from existing clients, accountants, attorneys, or the like. That’s how you build your business.” Given this, advisors are using information to create “future lists of clients” based on who their existing clients know. Here is how it can work:

  • Identify a prospect’s friends, colleagues, and other associates in their business and social networks.
  • Review the profiles you’ve built on these contacts to decide which individuals you might consider your ideal clients.
  • Develop mini-plans for each prospect to set up an introduction and arrange a meeting.

“In terms of best practices,” says David, “we have found that if you are as specific as possible in your request for a referral, the probability of getting it goes up exponentially. It’s the difference between taking a client out for a golf game and a beer and asking for a generic referral versus being specific about someone your client knows because they sit on a particular board together. The more targeted and explicit the request, the more likely you are to get it.” This approach avoids the response, “No one comes to mind now, but let me get back to you.”

It is also critical that you make it as easy as possible for your client to provide a referral so you minimize the use of their social capital. For example, if you are targeting someone on the board of a charity that has an upcoming event, you should buy a table. Let your client know you will be at that event and would welcome the opportunity to meet the rest of the board members.

It’s True: Information is Power

My discussion with David underscores the fact that information can help you connect with the wealthy. Naturally, you must have everything else in place as well, such as the right product offering and service levels. But creating trust based on personalized information can be a real differentiator in this market.

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