It’s critical that financial advisors find new clients—preferably affluent new clients. They can find such people in a number of ways, but the best way always proves to be referrals—either from clients they already have or other influential professionals. The former provide the most clients. The latter produce the best (and wealthiest).
These “centers of influence” can be critical for those building high-end financial advisory practices for two reasons. First, they have access to the wealthy. Second, they can provide functional introductions, validating the advisor’s expertise, showing clients how the advisor fits with them, and prompting the clients to take action.
Private client lawyers and accountants tend to be the best people to refer clients from a list that also includes private bankers and concierge service providers. However, it’s the lawyers, especially, who often have high-net-worth clients. They complement the role of the advisor rather than compete, and they contribute critical services such as the production of legal documents. But is every private client lawyer the same and worth pursuing?
The World of the Private Client Lawyer
Private client lawyers are professionals who provide the wealthy with services such as estate planning, asset protection planning, income tax planning and succession planning.
But beware. Not all of them are good for referring business to you. Some are too focused on technical matters. Some are not particularly adept at business development. And some run transactional businesses—providing legal expertise to one wealthy client only once before moving on to the next (leaving you only a small window of time to get an introduction).
Furthermore, these lawyers are operating in turbulent times, facing downward pressure on their fees as their services become commoditized and as wealthy clients become more sensitive to costs. There’s also a general anxiety among them that there are not enough wealthy clients for everyone. Thus, they are very concerned about their ability to maintain their income (and lifestyles).
This means advisors have to be very astute and focused only on those lawyers with the motivation to grow, because only those will be the ones more likely to direct wealthy clients to them.
One thing that helps is to consider their professional styles.
Four Professional Styles
When it comes to professional styles, there are four different types of private client lawyer: the technician, the rainmaker, the experimenter and the entrepreneur (See Exhibit 2). If you know the type, you’ll know what type of services he or she offers to what type of affluent client. The types also determine who the lawyer likes to partner with. Most important, these professional styles have a direct bearing on how financially successful the lawyer can be; the average compensation is significantly greater in two of the categories.
The professional style also determines the lawyer’s marketing orientation and compensation structure. Some are more oriented to marketing and are thus very proactive in generating new business and expanding current relationships.
Traditionally, private client lawyers are compensated through billable hours (the most prevalent approach, one reinforced by culture), project fees (calculated based on projected billable hours), administrative fees, and probate fees. But there’s a movement to go beyond these structures—for the lawyers to operate less like a profession and more like a business. Tradition-minded lawyers might question the legitimacy of these compensation schemes, but that’s likely because the methods are generating higher incomes for their adherents.
The most successful private client lawyers are the entrepreneurs. They combine a strong marketing orientation and more innovative compensation structures to garner greater personal wealth. They are followed in success by rainmakers, who tend to rely on traditional compensation approaches such as “time plus expenses” billing, but are successful mainly because of their ability to bring in new affluent clients.
“Experimenters” might use new compensation structures that get them greater revenues per client. But they are not very proficient at tapping the wealthy for legal services. Technicians, meanwhile, might be extremely competent—even brilliant—but rarely have strong relationships with the wealthy.
Advisors, then, should probably focus their efforts on entrepreneurs and rainmakers. The other two types could conceivably refer clients, but tend not to have very many wealthy ones and often have limited influence with them.
Street-Smart Networking
Advisors who use street-smart networking can turn entrepreneurs and rainmakers into advocates, people who will regularly refer their affluent clients and actively lobby—for one advisor as opposed to a list of them. But knowing how to network means having an in-depth understanding of each private client lawyer. Among the questions you should ask are these:
• How much money does the private client lawyer earn?
• How much does he or she want to earn?
• What keeps the private client lawyer up at night?
• How is he or she sourcing new wealthy clients?
• What are the compensation arrangements being used with his or her wealthy clients?
• What is the private client lawyer’s vision for his or her practice?
• Aside from technical proficiencies, what strengths does the private client lawyer have that can translate into greater success?
• How influential is the private client lawyer with his or her affluent clients?
• What are his or her previous experiences referring wealthy clients to other advisors?
• How “hungry” is the private client lawyer?
The answers to these questions can help advisors develop insight into the lawyers they want to work with. Relatively quickly, they can ascertain what the lawyer’s type is and whether they want to build a relationship.
The nature of the legal business means it’s improper to create an economic relationship with a private client lawyer using referral or introduction fees or by sharing revenues. Nor is trading affluent clients a viable option.
However, there are indirect financial incentives.
One is to offer the lawyer insights into the world of the affluent—for example, by explaining the nature, advantages and drawbacks of family offices. You can also help lawyers with their own practices—perhaps by showing them how to convert billable hours into more profitable value-based project and retainer fees. Such business development aid is effective in motivating them to refer their affluent clients to you. Also, you can include private client lawyers in the events you produce for clients or develop joint thought leadership projects.
But again, critical to this process is effectively profiling the private client lawyers you are dealing with and giving indirect financial incentives to motivate them to provide you with high-quality client referrals.
Russ Alan Prince is president of R.A. Prince & Associates.
Brett Van Bortel is director of consulting services for Invesco Consulting.