In wealth management, what are blue and red oceans? Blue oceans represent untapped, uncontested markets with high growth potential, while red oceans are saturated, hyper-competitive markets with limited growth opportunities. This shift in approach could be the key to their future success.
The private wealth industry has several blue oceans, depending on segmentation. For example, oligarchs are often poorly served despite being surrounded by enablers and other professionals. Even with all this expertise at their disposal, most fail to optimize their financial lives. Oligarchs are a cohort of individuals who fuse political power and significant wealth. They are found in every country.
While the media usually connects oligarchs with the world’s wealthiest, they are also present at all levels of politics and communities. From the oligarchs looking to impact city government to the ones looking to influence international policies, there is regularly a disconnect between their objectives and financial situations.
While oligarchs swim in a blue ocean, they tend to be highly insulated. Additionally, helping oligarchs achieve their objectives often means using legal and wealth management solutions that address their financial and political goals. It can also mean working in the overlap between the two. Consequently, oligarchs are exceptional wealth management prospects for a few wealth managers.
Another blue ocean is multi- and non-jurisdictional individuals and families. These two cohorts are connected because of the focus on tax mitigation, which requires worldwide expertise. The former might need to align investment opportunities with golden passports. Meanwhile, perpetual tourists often need customized infrastructure to maintain their status and maximize wealth.
The Bluest Blue Ocean
Another blue ocean, which is the largest and bluest, is based on net worth. While there are no precise demarcations segmenting based on net worth, there are amazing opportunities with ultra-wealthy individuals and families who are not super-rich. The ultra-wealthy have a net worth of $30 million and greater, and the super-rich have a net worth of $500 million and greater. So, this blue ocean ranges from a $30 million net worth to a $500 million net worth and is an incredibly uncontested market with incredible growth potential.
This blue ocean may overlap with others. For example, as do perpetual tourists, many less affluent oligarchs swim in this blue ocean. Still, for most wealth managers, the ultra-wealthy, stopping at the level of the super-rich, where single-family offices increasingly proliferate, is where they have the most amazing opportunity because of outstanding growth and comparatively limited competition.
As noted, most people fail to optimize their financial lives. Thus, there are great opportunities for wealth managers with clients who are not ultra-wealthy and those who are super-rich. It is just that this bluest of blue oceans has fewer able competitors. For example, while many wealth managers want to move upmarket, few will. Similarly, as more professionals provide wealth management services, the level of competition decreases.
Obstacles To Success
Wealth managers interested in this, the largest blue ocean, must overcome several obstacles to become successful. Three of the most daunting obstacles are:
• Accessing clients swimming in the blue ocean.
• Determining ways to provide value to these clients.
• Helping these clients make smart decisions.
Accessing clients swimming in the blue ocean. Connecting with the wealthy is consistently the biggest obstacle for most wealth managers. The matter is exponentially complicated for wealth managers who want to work with the higher end of the wealth spectrum. While it is possible for most wealth managers to quadruple referrals from many of the wealthy, the more affluent they are, the more disinclined they are to refer their peers.
Therefore, the best action is to create strategic partnerships with other professionals. While there are many possible professionals to align with, from executive coaches to concierge physicians and even dominatrices, accountants and attorneys are often the best choices.
According to Robert Sandrew, chief growth officer at Integrated Partners, a leading national financial advisory firm, “Moving upmarket is not in the cards for most advisors, mainly due to the fact that they sometimes struggle to source significantly wealthier clients. We’ve developed extensive resources for our advisors that combat this struggle, enabling them to access the ultra-wealthy. The most effective way to do this is to find and develop strategic partnerships with accounting and law firms. One of our advantages is that aside from providing the education and support to build these strategic partnerships, we connect talented advisors with high-quality accounting firms.”
Determining ways to provide value to these clients. Most of the ultra-wealthy deal with complexity in their business and personal lives. Sorting through these situations is essential. Consequently, it is necessary to determine the appropriate, impactful, cost-effective wealth management solutions.
“Our team of service specialists is often asked to provide highly accomplished business owners and celebrities alike second opinions on a variety of complex tax and accounting issues,” says Evan Jehle, CPA/PFS, partner and COO at FFO, a leading multi-family office. “While there are times in which we cannot pinpoint better strategies, our decades of experience, ability to tap into unique client service processes, like Discovery, and comprehensive understanding of sector issues guides how we provide these high-net-worth individuals the outside counsel needed to form more bespoke, cost-effective wealth management and preservation solutions.”
Working in this blue ocean necessitates knowledge and proficiency in many legal strategies and financial products that are not usually appropriate for individuals and families with lower net worth. Some examples include:
• Creating a large-scale rainy-day fund negating all taxes on investment gains.
• Leveraging life insurance and asset arbitrage strategies that create greater risk-free profits.
• Integrated wealth planning solutions are tied to purchasing shares in privately held companies, minimizing all future taxes.
Many of the more sophisticated wealth management solutions were derived from the super-rich, their single-family offices, and savant professionals. However, many wealth managers are not widely aware of these solutions, contributing to this being a very blue ocean. Still, developing superior wealth management solutions is not enough; they must also work for the ultra-wealthy.
Helping these clients make smart decisions. Wealth managers must be adept at collaborative thinking because there are usually extensive wealth management possibilities for individuals and families with net worths ranging from $30 million to $500 million.
According to Homer Smith, founder of Konvergent Wealth Partners and co-author of Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results, “Collaborative thinking is required to ensure the success of our clients. Usually, there are several ways for the ultra-wealthy to get their desired financial outcomes. Therefore, we help our clients think through the various possibilities, addressing the advantages, complications, benefits, and limitations. It’s also essential that they clearly understand what they are agreeing to, which can take time because of the sophistication and intricacies of some of the wealth management solutions.”
Collaborative thinking is predicated on processes like Everyone Wins and an intense understanding of wealth management solutions, including how to reengineer them in specific cases. As so many wealth managers can only access cooky-cutter wealth management solutions, these individuals and families become a blue ocean.
Conclusions
Most individuals and families are being poorly served at all wealth levels. Despite their access and influence, segments such as oligarchs or multi-jurisdictional families often sub-optimize their financial lives. However, this failure is intensely present among those with net worths between $30 million and $500 million, making it the largest and bluest of the blue oceans in wealth management.
Connecting with and deeming ways to get superior wealth management results and collaborative thinking are critical to building an outstanding wealth management practice with these ultra-wealthy clients. For example, providing these clients with wealth management solutions previously restricted to the super-rich is impressive, powerful, differentiating, and necessary.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.