How to Attract and Retain High-Net-Worth Investment Clients | Lord Abbett
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Practice Management

By cultivating fewer, but wealthier, clients, advisors can increase their AUM in exchange for providing a full line of premium services.

This Practice Management article is intended for financial advisors only (registered representatives of broker dealers or associated persons of Registered Investment Advisors).

Ahmie Baum, managing director for UBS Financial Services in Pittsburgh, has only one-third of the clients he had five years ago—and he couldn't be happier. That's because in 2008, Baum analyzed his business and decided to narrow his focus. He kept the clients who wanted a full suite of wealth management services. He moved the bulk of his book to other advisors.

The main idea behind the shift is to cultivate fewer—but wealthier—clients who put a premium on service. "We're looking for a small group of people we can help in a big way," Baum says. The shift is still in process, but since the advisor slimmed down his client base, his assets under management are up about 10%, and he expects that number to climb to 100% within the next three years.

Baum's strategy is one of the ways that advisors can attract wealthier clients to their practices. Research and coaching firm CEG Worldwide counts about 420,000 advisors in the United States, but only about 1,200 (less than 1%) have made more than $1 million in net income three years in a row. One hallmark of that elite group is that it has an average of 43 client households, significantly smaller than the 200-plus average that other firms manage. "Top advisors tend to have fewer clients, but spend much more time with them," says Paul Brunswick, senior managing principal for CEG.

Winnowing down the customer book is just the first part of the process. Advisors also have to capture additional business from the clients they keep. And they need to think about marketing to prospective clients in new ways. "Nearly everybody would say 'yes' if you asked if they would like to have a client with $100 million, but the reality is that it takes a different approach and value proposition to be able to serve that person," Brunswick says.

A More Holistic Approach
The range of topics advisors discuss with these clients must be more comprehensive. "Affluent folks tend to want to be advised more holistically," notes Cory Colvin, lead business development consultant for Baird's Private Wealth Management group. "A stock or bond idea may be of interest, but it's often not the primary consideration. Instead, it's looking at investments in the context of related areas such as tax minimization, wealth protection, wealth transfer, and philanthropy." Practically speaking, of course, those conversations can lead to cross-selling the client on additional products, such as insurance and 529 plans.

Surfacing those issues is one thing, but to address them effectively, it's also critical to have a good network of experts, both inside and outside the firm. In fact, many advisors with high-net-worth clients position themselves as "quarterbacks" of the client's team of experts.

"We're not attorneys, accountants, or insurance brokers, but we are the best suited to run the team and integrate those conversations for the client," says Baum, who leads with this idea on his website. The team can include a wide variety of people, including experts whom clients have engaged independently, internal experts at a firm, and local specialists.

Not surprisingly, many financial advisors who have made the leap to a high-net-worth client base say that outside help was a critical part of the process. Gary Werkman, a senior investment consultant with Baird in Holland, Michigan, says that working with coaches like CEG Worldwide was "invaluable" in formulating a strategy that resulted in him transferring one-third of his clients to other advisors in his firm about a decade ago and more than doubling assets in the ensuing years. Others note that coaches or internal resources made a big difference in helping them package and market services they were already offering on an ad-hoc basis.

"Wealth management is a term that 20 different people will have 20 different definitions for," Baum says. "We had to get better about articulating what we offered, and what the client should expect." In his case, that meant defining (and publicizing) a five-step planning process that made it easy for clients to see how he would guide them over time and increasing the frequency of client meetings from quarterly to monthly.

Reaching Your Target Clients
The big question, of course, is how to find and focus on high-net-worth clients without appearing to be elitist. Few firms publish asset minimums on their website, despite having implicit targets. "We don't want anyone to feel unwanted," says Scott Nash, executive vice president of wealth management with Janney Montgomery Scott in Philadelphia.

While he has clients with assets up to $40 million in his practice, and prefers to work with those who have a minimum of $2 million, "we'll try to help anyone," he says. Helping doesn't always mean taking a client on, but he does feel that minimums are not an effective indicator of whether an investor is a good fit. Others agree. "The $2 million client who needs an array of services is arguably a better client than a $5 million client who just needs execution," Colvin says.

One way to attract clients who fit your desired financial demographic profile—and gently repel those who don't—is to formulate a specialty around clients in certain lucrative professions like public-company executives or orthopedic surgeons. Cultivating expensive hobbies can work as well. "If you can align what you're interested in doing for fun with what you do for work, your probability of being successful goes up exponentially," says UBS financial advisor James Hilton, a Newport, Rhode Island-based boating enthusiast who has developed a niche with people who are involved in yachting.

In fact, CEG's Brunswick counts specialization as the fastest way to move upmarket. His research shows that six out of 10 top advisors use this marketing strategy. Building a specialty can take work, though, particularly if you're starting from scratch. Brunswick advocates researching the group you're interested in serving. If the target group is orthopedic surgeons, for example, call people who know them or are influencers within that profession, such as CPAs, attorneys, and vendors, to determine the unique needs of this niche. You also should call some people who are potential clients in this niche, but don't try to sell anything during those calls, Brunswick says. "You have to demonstrate you're an expert, and the way you get expertise is by going out and conducting these interviews," he says.

More generic, but also successful, in finding new business is the practice of offering free second-opinion consulting sessions to existing clients' friends and family members. The process allows advisors to get to know a prospective client and his or her concerns. At the same time, advisors can offer a high-level view of what wealth management approach they would take if the prospect were to become a client. The tricky part is positioning yourself as an expert without trashing the competition. For example, Hilton recalls when an investor with $60 million asked him for a second opinion. "I did not say, 'This is so inappropriate for you,' but rather, 'This is what I think your advisor is trying to do, and I can see how it's consistent with what you've said your investment goals are.'"

Other standard marketing practices also come into play with high-net-worth clients—upscale events, free annual calendars, top-notch websites, and a social media presence. Just remember that winning a larger client is likely to be more intensive and time-consuming than winning a smaller one. "Larger accounts take longer, and they should take longer," Nash says. For large prospects, he researches the investors' interests. Then he calls to find out how their vacation homes fared in a storm or to tell them about a new restaurant that opened that they might enjoy—but he doesn't talk about business.

Moving a practice upmarket takes perseverance. But some advisors may be relieved to know about one benefit that comes with it—a lighter emphasis on market performance. "When you're dealing with a single account, you continually have to talk about return relative to cost. When you go upstream, its return plus value added," Werkman says. "The deeper I get into the relationship, the less I hear questions about performance."

—Alix Stuart 




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