Attracting the affluent

While the number of high-net-worth households is set to skyrocket before the end of the decade, competition among firms catering to Canada’s financial elite will continue to be very stiff. Two industry players weigh in on how their respective firms attract and retain high- and ultra-high-net-worth clients.

Grant Rasmussen, president and CEO of UBS Bank (Canada), explains that brand recognition accounts for a considerable percentage of the clients his firm attracts. “We’re known for dealing with more millionaires and billionaires than anyone else, so that’s a starting point for many,” he says.

The global reach of the brand is particularly important when it comes to attracting wealthy immigrants, Rasmussen adds.

“We’re the largest wealth manager in Asia, so wealthy Chinese immigrants to Canada, for example, will automatically make a beeline for UBS.” But there’s also a more active component to bringing clients in, Rasmussen says. “There’s a lot of information out there on what I’ll call the super-ultra-high-net-worth client—the top 100 families in the country. They are well known to us, and if they’re not already clients—a lot of them are—then we’ve been engaged in dialog with them for a number of years. So it’s a matter of continuing the discussion, waiting and following up.”

Rasmussen explains that a critical part of his firm’s success in attracting both high-net-worth and ultra-high-net-worth clients is UBS’ team approach to wealth management, which he contrasts with what he calls the ‘star principle’ used by some firms.

“If the advisor has a certain charisma and there’s a lucky chemistry between him or her and the prospective client, then maybe they land the account. We don’t work on that model. It’s not that we don’t have people with chemistry and charisma—we certainly do—but we believe that for the high-net-worth and ultra-high-net-worth client, you need a team,” Rasmussen says.

This type of client invariably brings an extremely high level of sophistication and complexity to the table, so a Jack of all trades who talks a good game simply won’t do.

“It’s impossible for a single person to have high quality answers on questions ranging from tax and trusts to global investing and philanthropy. In fact, we find it’s hard for a three-person team to have all the answers. So typically, for an ultra-high-net-worth client, we have no less than four people going into a meeting, and often we have as many as eight,” Rasmussen explains.

Given the competitiveness of the high-net-worth marketplace, and the fact that clients are much more knowledgeable than they were even two or three years ago, firms catering to the affluent need to find ways to offer the kind of value that will help them stay one step ahead of the competition.

Offering a multi-currency platform and open architecture on alternative investments are two of the ways UBS carves out a unique space in the marketplace, Rasmussen says.

Money in motion

David Friesen, director of wealth management and portfolio manager with Friesen | Rebec & Associates at Richardson GMP, says prospecting for high-net-worth individuals and families by simply contacting them out of the blue just won’t cut it.

Friesen’s group, which caters primarily to business owners and senior executives with $10-million or more in investable assets, has had great success using what they call the ‘money in motion’ approach.

In the case of prospective clients who are business owners, the approach involves marketing to them right after they’ve sold the business.

“When the business sells they go through a significant change in their liquid net worth. If most of their money is tied up in company shares, it’s not an asset they need outside help to manage. But once they sell the company, they’re put in a position where they have to look at the management of those assets on a different level than before,” Friesen explains. “They take this as an opportunity to assess their circumstances, and what typically happens is they’ll say to themselves, ‘I’ve just had a tenfold increase in my liquid net worth—do my current advisors have the skill set and the experience to manage this greater level of capital?’ We find our opportunity to sit down with individuals face-to-face goes up a significant percentage if we address them at this moment, as opposed to just sending them a letter any old time.”

Friesen notes that high-net-worth clients usually want one team of professionals looking after all their financial affairs. “It makes life a lot simpler for them if they have someone they can truly trust to manage their financial situation the same way they would if they had the time, expertise and inclination to do it themselves,” he says.

Attracting the prospect involves two main steps, Friesen explains. The first involves providing what he calls a ‘scrub’ of each aspect of the prospect’s financial profile. “This includes everything from tax structure to will and estate to insurance. If we don’t have the expertise within our group, we can leverage the firm’s in-house wealth planning professionals and come back to our prospect with our recommendations on making them as financially fit as we possibly can in each area.”

The second component involves risk management. The market meltdown of 2008 revealed the ineffectiveness of many mainstream risk management techniques, Friesen says. As a result, there is a great deal of skepticism among high-net-worth clients when it comes to investing in the stock market. “These clients want prudent growth, but their number one concern is wealth preservation,” Friesen observes.

Formulating a plain-language risk management strategy that demonstrably limits downside risk if the market experiences a significant sell-off serves as a major confidence-building measure for wary investors, and may well be what finally convinces a high-net-worth prospect to sign on.

“Every time we make an investment in the portfolio, we do what 99% of investors out there don’t do: determine exactly when to sell the investment for a loss. Most only establish sell criteria for the upside—that is, when the investment goes up a certain amount, it’s sold for a gain. We add in sell criteria for the downside, because our theory is that what really damages a portfolio is having a few big losses. Our stance is to never allow a large loss—we keep all our losses strictly in the single-digit range.”

This approach, Friesen adds, is the equivalent of a firewall against the disastrous consequences of irrational, emotional responses to market volatility.

“When you have a lot of volatility, it can get very emotional, which makes it very difficult to make good decisions—even for an advisor. By having a set strategy in place on every investment, we take the emotion out of the decision-making process. The decision is made well in advance.”

Madoff’s gift

“If there’s one gift Bernie Madoff gave the world, it was to make everyone a little more jaded and concerned about who is managing their money,” Rasmussen says, adding that while “Madoff certainly caused a lot of pain and suffering, there was a lot more wealth at risk elsewhere that is now a lot smarter because of the Madoff affair. It’s crucial to maintain a degree of healthy skepticism.”

Promoting this healthy skepticism is the impetus behind a video UBS Canada has posted on its YouTube channel, which suggests twenty questions clients should press their advisors on. Clients shouldn’t give them a dime, Rasmussen suggests, until they get complete, direct answers to these questions.

“This is a business that has historically prided itself on a lack of transparency,” Rasmussen notes. “And that’s what Madoff did. He said, ‘I’m part of a private club, and if you have to ask me a bunch of questions you can’t afford to join the club.’ That’s just wrong. Our HNW clients should feel proud they’ve made a lot of money, and they should not be afraid to ask some tough questions of the people who are going to be managing their life’s work.”

Rasmussen notes that transparency is an important confidence-building measure, especially for the ultra-affluent, who more than ever need to be convinced their wealth is in safe hands. A good practice, he suggests, is to volunteer the answers to the tough questions clients should be asking—before they ask them. “Before they even have a chance to ask the ‘Ah ha!’ question, we’re volunteering the ‘Ah ha!’ answer,” Rasmussen says.

A good example is the issue of fees. “People rarely ask about fees because they’re nervous about raising the issue. Often this is because wealthy clients don’t want to appear cheap,” Rasmussen says.

He notes that as a matter of policy the advisors his firm works with are encouraged to volunteer clear and detailed information about fees right out of the gate.