Landing high-net-worth clients

Like Ahab’s white whale, the high-net-worth investor looms large in the back of advisors’ minds — seemingly just out of grasp for many of them.

A few tweaks to your business model and a couple more years of referrals and you’ll be there, you tell yourself. But if that’s really what you think, you’re probably going to be chasing that elusive whale for most of your career.

Just being competent isn’t enough to attract and keep high-net-worth clients. Most major financial institutions and advisor dealerships target these elusive clients as one of the most important drivers of future revenue. And the last five years have seen an overhaul of high-net-worth firms as they expend more resources and expand their teams to attract this lucrative clientele.

The focus is on the client experience. Wealthy people are able to command better service in everything they do, because of the money they bring to the table. While the investment or insurance services may not be that drastically different from client to client, on a nominal basis, a wealthy client — even with a conservative portfolio — is going to bring you a lot more money than middle-class clientele.

To compete, advisors must drastically ramp up the level of service and experience for these clients. You don’t offer first-class passengers foil-lined bags of nuts; you give them champagne. And many firms have taken this to heart.

While in the past you may have been able to attract some wealthy clients, rest assured if your client-facing approach hasn’t been oriented to focus purely on the needs of high-net-worth investors, there’s a good chance another firm is going to be knocking on your client’s door and taking those fee-generating assets with them.

Tom McCullough, a principal at Northwood Family Office, which specializes in serving clients with assets ranging from $10 million to $500 million, puts it succinctly, “If your business is not built around serving specific high-net-worth needs, you’re not likely to attract high-net-worth clients.

McCullough says he’s been inspired by the work of well-known management strategist Michael Porter, who believes the healthcare system would be better served with specialized institutions that comprehensively treat certain conditions rather than a system of specialists that only have the ability to focus on one specific niche.

“If you suffer from chronic headaches, you talk to your G.P. and he refers you to a bunch of specialists. Someone will tell you to go to a chiropractor, somebody else will tell you to see a nutritionist because it might be something in your diet; another person may tell you to see an oncologist because maybe it’s a tumour,” McCullough says. “That’s the way the healthcare system works in Canada. You have to self-advocate, you have to build a case using different specialists.”

Porter’s work uses the example of a German headache clinic. Patients go there because they suffer from chronic headaches. So the clinic already knows a lot about the patient because they’re a typical headache sufferer. They then deal with the patient’s individual issues, which is different from what happens if a person goes to an overly focused specialist.

McCullough adds, “We specialize with those chronic headache sufferers, which in our case are wealthy multi-generational families.”

The team approach

Probably the single most important aspect of high-net-worth advising that’s changed over the last half-decade is the rise of the team-based approach, according to Mike Scott, managing director of RBC Dominion Securities.

Investments are what his firm makes money on, but high-net-worth clients require exceptionally high levels of comprehensive financial planning given the complexity of their affairs. Scott says you cannot adequately serve this clientele without a range of professionals with different expertise at your disposal.

Over the last seven years, RBC DS has poured millions of dollars into increasing the number of value-add planning professionals who support its traditional investment advisors. One advisor no longer cuts it, Scott says, so the firm has more than 150 on-staff experts, including lawyers, accountants, actuaries and insurance specialists who offer planning advice that is apart from the revenue-generating area of investment management.

“I’ve hired will and estate lawyers, and chartered accountants who are financial planners with tax expertise. I’ve even got lawyers with corporate tax expertise on staff,” he says. “HNW advising goes far past money management. Think of money management as table stakes; you have to be able to offer the full slate.”

Additionally, Scott says, DS has hired a huge support team—close to 150 people, 100 of them high-end professionals working with investment advisors on the wealth planning needs of their clientele.

“That didn’t exist five years ago,” he adds. “To me that is the biggest change. If you’re going to sit down with high-net-worth clients, you better have a very broad range of strong technical skills to deal with them—those are never possessed by one person.” Scott says high-net-worth clients want to see a comprehensive approach, where experts in each area of financial planning are collectively overseeing their total wealth.

“Take a simple situation: most people want to know when they can retire; if they got sick tomorrow, they want to know if their family will be taken care of; if they live to a ripe old age they want to know there is an estate plan; then they also usually want a little bit of tax planning,” he says. “When you get into the HNW market—often, though not always, the business-owner market—those clients have operating companies, holding companies, capital dividend accounts, or the possibility of an estate freeze; you know these are not simple conversations. These are more detailed conversations that usually require a lawyer, an accountant, or even an actuary to be present, trained in areas such as corporate tax planning and advanced personal financial planning.”

When you get down to brass tacks, it costs a lot of money to offer such wide-ranging services. And Scott asserts the old model of a one-advisor practice overseeing everything can’t compete. He views that model as antiquated and says it frankly doesn’t offer the scale to serve affluent clients. You have to be able to bring the full offering.

“If you’re going to walk the walk in the HNW space, it takes significant investment. You need support all the way up from the top,” Scott says. “I don’t know how a small firm can bring the appropriate client experience for HNW investors; not to mention all the reporting you have to do for this clientele. That’s a major spend.”

He notes the spend his firm has made over the past few years has been done in a very forward-looking manner. “We’re investing resources to pay off 10 years from now,” says Scott.

McCullough points out the time his team needs to coordinate a high-net-worth account is massive, largely because his firm requires virtually every piece of financial and legal documentation the client owns.

“We read all their trust agreements, all their wills, all their insurance policies, all their corporate directorship agreements, their prenuptial agreements—everything. How can you competently advise someone if you don’t know his or her entire situation?” he says. “If they come to you and say, ‘I want to buy an ETF or a mutual fund and they know that’s all you’re going to do for them, that’s fine. If you’re referring to yourself as an advisor and you don’t know the personal situations with their Down syndrome child, or the details surrounding their mother who is in a retirement home, how could you possibly do a good job advising them?”

At BMO Private Harris Banking, the planning process can essentially be delivered at any point on the client’s timetable, and in a range of languages, says Sandra Henderson, a vice-president in charge of the firm’s Greater Toronto area business.

“We do quite a bit of work with the Asian market, so certain language skills become a requirement. We have a full team that speaks fluent Mandarin and Cantonese,” she says. “Everybody at the firm has BlackBerries. While our employees are not expected to work weekends, if a client has a need on a Saturday, 99% of the time they’re going to get somebody pretty quickly.”

The lavish touches

What might surprise some advisors is that the BMO Harris high-net-worth services are available to a wide swath of clients—with a minimum asset level of $500,000. The services become more and more posh depending on the size of the account.

“We have a number of initiatives for clients in later stages in life that provide healthcare advice. The program is called Encircle. We have an advisory healthcare panel that actually helps clients find retirement and nursing homes,” Henderson says. “We provide a short list of firms we’ve interviewed. We outline the different services and get them on the waiting list of some of these institutions. We take that legwork away from the client. “We don’t charge for these services, they are all part of the fees we derive from some of the other services.”

Henderson says one of the biggest value-adds a firm can bring to high-net-worth clients is to save them time. For everybody, time is money, but for affluent clients, it can be a lot of money.

BMO Harris also provides a number of services and perks that fall far outside the realm of wealth planning. There are the old standbys: corporate boxes at the Toronto Maple Leafs and Raptors games. But there are also exclusive art gallery and museum events, art-appraisal seminars—even trips to Italy to test out the newest luxury cars. For certain A-list clients, the firm will procure tickets to high-end international events like the annual Masters golf tournament.

“We have done a number of art series sessions, which pertain to educating a client on how to start a collection and how to value art. The sessions include seminars on where you put some of those acquisitions. We’ve also done seminars on real estate and how to develop a real estate portfolio for investment purposes,” she says. “A really unique one we’re working on right now is a differentiated experience of going to Montebello and driving some of the 2011 luxury cars. We’ve been working on this with some of our clients who own car dealerships. They’ll get to go and drive cars that aren’t even on the market yet.”

Admittedly, these are value-added services even Henderson concedes go beyond the expectations of most clients. But they provide an object lesson in how far firms are willing to stretch to please their most lucrative clients.

“Clients are absolutely surprised we offer these services. The interesting part is we almost have to push some of the clients to take advantage of them,” she says. Henderson says there’s a level of professionalism clients expect when they walk into a private bank. For example, at the BMO Toronto head office in First Canadian Place clients can conduct their personal banking in a private area. They don’t go down to the branch, but instead make transactions in a “couch room” that resembles a living room more than a bank office.

Susan Latremoille, a veteran high-net-worth advisor who heads up the Latremoille Group at Richardson GMP, which requires a minimum of $2 million in assets, also has her office in the heart of Toronto’s glitzy financial district.

Latremoille offers clients the option of conducting face-to-face meetings at their homes or places of business in the event they don’t want to travel downtown. Those who choose to visit an office to meet with the whole team are offered valet parking, free of charge—a nice added touch in a part of the city where parking runs in excess of $25 for a couple of hours.

The Latremoille group is a team of five that only serves 100 families, and focuses on offering exceptionally personal levels of service.

“There are five of us and only a hundred families. I challenge anybody in the business to provide that kind of team structure,” she says. “Advisors will often say they give really good service, but then tell me they have 250 clients, and three people on the team, including an administrative person. I don’t get it. I know how much time, effort and knowledge goes into servicing high-net-worth clients.”

Latremoille adds, “We know all their special anniversaries—whether it’s a birthday, birth of a child or grandchild, or even moving homes—we would do something special for them. We’re always adding little personal touches that show we’re aware and we care about what’s going on in their lives.”

Client appreciation events are held annually in either spring or fall, since too many of them are either snowbirds or regular travellers who are rarely around in winter or summer. Latremoille used to offer tangible end-of-year gifts to clients, but decided that for clients who can afford most of the trinkets they receive, a year-end charity donation in their name is a classy and better-appreciated gift.

McCullough says his firm doesn’t babysit or walk the dog, but if necessary will do pretty much everything else if it helps the client.

He describes a case where a client was stressing about a proposed tax on the boathouse at his cottage. A number of scenarios could have resulted from the policy change, including a situation where he might have to lease it back to the province.

McCullough says the client was not “administratively oriented,” so his firm offered to take over all the paperwork and surveying of the property.

“We went and talked to the surveyor and got it all done. It turned out the government backed out on the tax and it’s on hold now. But we at least took it off his plate,” he says. “We do a lot of cross-border work. There are clients who have U.S. citizenship issues—a child, husband or wife born in the States. We have to determine what the implications of that are. Or else a client’s son might lose his American Express card overseas on vacation, and we help figure that kind of stuff out too.”

Northwood Family Office also offers employment counselling to business owners who may have sold their business to a larger entity, and are still trying to decide whether they want to stay on as CEO of the company.

It’s not all about the money

Wealth is a means to an end. McCullough points out some firms can get caught up in trying to maximize growth on their clients’ assets, when in fact the client may only need a meagere rate of return to meet his or her financial goals.

This may be particularly true for the suddenly wealthy, such as business owners winding down their life’s work. Often, these entrepreneurs have lived a relatively modest lifestyle despite the massive amount of dollars they’ve been sitting on.

For such clients, a lot of time has to be spent talking about what’s needed to meet their objectives, in terms of rates of return and their actual spending needs. For the suddenly wealthy, those numbers will be different compared to those used to a lavish lifestyle. It can be a tough call to invest properly for a client who really only needs a 1% return to fund his or her expected lifestyle.

“Do you put it in stocks and try to beat the TSX? A lot of people say I’ve got this fund that does better. But is that the client’s objective, to have way more money than they need to do all the things they want to do when they die?” he says. “If that approach were risk-free, go for it, but it’s not. One hundred per cent equity funds were the ones that were down 60%.”

Latremoille emphasizes there’s a tremendous value for clients in having a true fiduciary who helps them meet their goals. Her firm charges for the original discovery and planning process.

“For us to really look into their situations, we charge a fee. We’re not selling to them, we’re trying to help them. A lawyer would charge a fee for writing your will — if you sign it or not, that’s your business. We feel we’re adding a lot of professional value at that stage. Later, we earn fees for the ongoing investment management or any other services we would be providing. We don’t know up front whether the client is going to choose those.”

In the end, profit, planning, investment or growth all take a back seat—it all boils down to one thing — client experience.

In the rush to capture the growing HNW market share, few take the time to develop a solid understanding of the goals and needs of affluent clients. The result: undifferentiated messages and unsubstantiated promises.

To land the elusive white whale, advisors need to extend their service offerings beyond promises of a pot of gold and speak to the more precious intangibles — goals, dreams and aspirations.

Understated Wealth

Now don’t overdo it. Too much sparkle could turn off the super-duper rich.

When people achieve a certain level of wealth — say $150 million or more — they know they’ve arrived. They don’t feel the urge to proclaim it to the world. Grant Rasmussen, president and CEO of UBS Bank (Canada) says fear of kidnappings or abductions could be strong reasons for them to guard their privacy and family. “The higher you move up the wealth curve, the more understated it gets,” he says. “Some of our richest clients, for the most part, are much more understated than people who work in this industry. Top traders are more likely to drive fancy cars and wear fancy brands than their ultra-rich clients,” he adds.

The recent list of infamous advisors with flashy lifestyles made possible by stealing clients’ cash — Bernie Madoff, Earl Jones and the like—inspires more nervousness than admiration among prospective clients.

Rasmussen says the past couple of years have especially witnessed a questioning of opulent lifestyles. “We’re starting to see clients do their due diligence.” Well versed in the ways of the high-net-worth clients, Rasmussen says advisors serving the rich don’t need to sport Armani suits, drive Lamborghinis, or occupy the tallest tower in town to impress clients. They rather need to display quality, experience, and genuine care for clients.

Rasmussen does, however, believe in providing the best service to clients seeking luxury investments.

For example, UBS has a whole separate stream of “Wine Banking”—global experts on wines and vineyards—for clients who wish to buy a vineyard anywhere in the world. From someone really conscious of the quality of grapes, to someone looking for a fine Chateau for his or her grandkids to hang out, experts tell clients how to value the vineyard and where they should be looking.

The global financial services firm also has global expertise on art for ardent art collectors; global currency; global philanthropy and family governance.