What to do when you get
your first $30-million client?
Most advisors working with semi-affluent clients, if
they keep at it long enough, will eventually have a $10-million or even
a $30-million client walk through their door. How does that first
client find them and will the advisor's skills and knowledge be
adequate to serve this ultrawealthy client?
If your bread and butter client has a $1 million net worth, then the thought of a client ten to 30 times that size may intimidate you. Will you need to take a crash course in alternative investments (because, surely, your soon-to-be-biggest-client won't be satisfied with mutual funds)? Do you need to find the client an estate planner whose sophistication is unparalleled among the ranks of your existing (and now seemingly middle class) clients? Or maybe you just need to update your wardrobe from Joseph Banks to Armani?
Clearing The First Hurdle
Admits Kristofor Behn at Fieldstone Financial Management Group in Boston, Mass., "Initially I wasn't sure I could assist him given my limited exposure to clients of his size," referring to the $30-million client he uncovered one day within a practice he'd bought from another planner. "However, I quickly learned that this reservation was unnecessary."
Adds Diane Pearson at Legend Financial Advisors Inc. in Pittsburgh, "In dealing with the [ultrahigh-net-worth], it's important not to jump to the conclusion that your skills and knowledge are inadequate. When faced with new situations, we have turned to our peer network of other advisors."
Achieving a comfort level with any client takes some time. "As I grew to know my client through several hour-long conversations," continues Behn, "I realized that what he was really looking for wasn't unusual: truly objective advice from someone willing to share his opinion even if that opinion flies in the face of what the client believes to be true." In the case of Behn's client, what he really wanted was help controlling the impact of his vast wealth on his children and grandchildren, since they had not worked to earn that wealth.
Jean Sinclair of Avenue Advisors LLC in San Diego believes that what it takes to work well with her $10 million, Inc. Magazine Entrepreneur of the Year client has more to do with intellect than with net worth. "I think that individuals who have amassed their wealth through their business acumen have a good sense about people. A high-net-worth client who is a litigator spent most of our initial meeting asking me personal questions, and told me he hired me because he had the right gut feeling about me."
Where Do They Come From?
Some ultrahigh-net-worth clients come from logical sources; others come out of nowhere when you least expect it. Scott Snow, CPA of Scott Snow LLC in Westlake, Ohio, worked at Ernst & Young for 12 years, a stint that ended when he started his own advisory firm in June 2005. His 20 high-net-worth clients, collectively representing assets of $200 million, came with him from the accounting firm whose familiar brand helped him attract the clients in the first place. "Ernst was definitely a significant boost in getting to these clients," says Snow. "What I'm finding now, on my own, is that the trust takes longer. Clients may check my references now."
In 2002, Behn bought another advisor's practice built on an hourly fee-for-service model. Within such a practice exists clients whose net worth is almost irrelevant, since service is rendered under an hourly fee structure. One such client had an extraordinarily high net worth and was receptive to a relationship extending beyond just hourly service.
Charlie Haines, majority owner of Charles D. Haines LLC in Birmingham, Ala., says small clients like to refer their much wealthier friends for the surprise effect. And don't forget that most antiquated of referral mechanisms-The Yellow Pages. Advisors often are hesitant to terminate their listings in the yellow book because every so often a client makes it all worthwhile, like Sinclair's $10 million entrepreneur.
Behn contends that the best kind of high-net-worth client is a first-generation high-net-worth client. "I've found that first-generation wealth values honest opinions, in direct contrast to second-generation wealth, which is looking for support for its decisions," he says. "There is a big difference that I believe is the main reason wealth rarely grows through the second generation and almost never makes it to the third generation."
So what are the implications for attracting first-generation wealth? "I believe larger clients surround themselves with intelligent advisors because they're looking to see things from many perspectives besides their own. Most advisors I talk to attempt to make themselves look just like the clients they seek to work with. I think this is a huge mistake ... wealthy clients are already surrounded at country clubs and fancy restaurants by people like themselves." Trying to look like the ultrahigh-net-worth client and running in his circles, says Behn, suggests that your perspective will be nothing new.
Snow believes the way to land a $50 million client, like the ones he works with, is to not lead with investments. "I meet with them a few times, look at their current situation, maybe show them monthly net worth statements, and gradually gain their trust by demonstrating added value." He might say, "You should be in municipals rather than taxable bonds," or he might entice the client with, "You're paying AMT and we can avoid or reduce that." "Find those things their current advisor should have been doing but didn't, and eventually all the assets will come over."
Sinclair says ultrahigh-net-worth clients have shown interest in her as a person. "They not only want to know if I'm trustworthy, but whether I can think and communicate well. It also helps to forge common ground if you and the client enjoy some similar activities." To strengthen her relationships, Sinclair compares notes with her wealthier clients on travel, restaurants, gardening, cats, horses and even politics.
He's My Client-Now What?
Do advisors provide more upscale services to the ultrahigh-net-worth? They might provide a few concierge services but, from an investment standpoint, it's more or less business as usual, says Snow. "I'm probably using more money managers with a $50 million vs. a $3 million client, but I still invest in no-load mutual funds, too."
Estate planning, though, is definitely more sophisticated. Snow adds, "I got my training in estate planning at Ernst & Young, and I need to stay on top of it, as well as work with [attorneys] who stay current." Again, he says, it's all about planning, so the extra work to be up on estate planning for the ultrawealthy allows him to constantly bring new ideas to the table, demonstrating his value to the client.
Haines, whose clients' net worths average $3 million but can reach as high as $50 million, has taken a philanthropic direction with his ultrahigh-net-worth clients. His influence was his step-grandparents, who started a private foundation holding assets now valued above $400 million. "My step-grandfather was one of the money men behind L.B.J., and I grew up in the family business, often sitting through grant committee meetings at my parents' house. My stepfather would call money 'frozen energy,' something that could be liberated for philanthropic purposes."
With this background, Haines didn't have all the knowledge he needed to guide his clients in a philanthropic direction, but he knew the culture. "We paid for a consultant to train us, and we learned by going to meetings of the Association of Small Foundations."
Haines' employees got behind his new direction, as well. Upon hearing about it, one employee said, "Oh, we're going to do more than just helping rich people get richer?" The employees are having fun with it now, says Haines.
Does he take every ultrahigh-net-worth client in a philanthropic direction? "Only one client has been hesitant," he says, illustrating the nuances in client histories and attitudes toward giving. "His is a 'new money' situation. He was raised almost poor, but he did a good job [in life] and a bunch of money came with it. He'd never really thought much about philanthropy because he grew up with a survival mindset."
For all the others, Haines looks at the family's core needs. He "stress tests" that number, and deems the excess available for riskier investing and philanthropy. Says Haines, "This is one of the most fulfilling things we've done for families."
Landing an ultrahigh-net-worth client when your only experience has been with the "semi-affluent" doesn't have to bring on a panic attack. Not every wealthy person wants or needs alternative investments or sophisticated estate planning but, for those who do, you have peers and other resources for guidance. Most important, just remember to find out what's truly important to the client and key off of that. Starting with a personal approach can never take you too far afield.