What the wealthy want

(September 12, 2003) When Advisor’s Edge first appeared back in 1998, there really wasn’t a high-net-worth (HNW) market as such. Oh sure, there were wealthy people. And yes, there were professionals who served them. But they did so largely under a veil of secrecy — in private banking offices and boutique firms. The result was a knowledge gap.

Much has changed. As more and more professionals pursue HNW clients, what was once secret has become public knowledge. Now financial professionals can zero in on HNW needs in a way that wasn’t possible before. With that in mind, here are three key HNW needs identified in the 2003 Merrill Lynch/Cap Gemini World Wealth Report, along with some suggestions on how to respond to them.

Be a partner

The soaring stock markets of the late-1990s encouraged investors to manage their own wealth. After a three-year market downturn, however, many are now realizing the importance of professional advice. But HNW individuals aren’t looking to delegate responsibility completely. Most are looking for professional partners — someone who will work with them rather than for them. To position yourself as that partner, start by making your relationship clear to the client.

We tell all clients that we are wealth management partners, not order-takers. This works both ways: When speaking to HNW clients, choose your words wisely. Don’t tell the client what to do. Ask for input and explore alternatives together.

Preserve wealth

HNW individuals have become more sensitive to risk over the past several years. For professionals, this means shifting the focus of portfolio building from performance to protection. Familiarize yourself with fixed income, alternative assets (hedge funds and managed futures), private equity, real estate, principal-protected notes and other specialized investments that will help your HNW clients protect their wealth. Educate your clients about these products by sending them reports or other literature.

If the client has substantial assets, a personalized presentation that incorporates their financial goals can work well. Don’t apologize for your security-first attitude. Instead, be proactive about addressing potential financial threats, and tell clients that your number-one job is to protect their wealth. This will encourage the client to consider you as a steward of wealth, not a stock jockey. That’s a better deal for you and for the client.

Manage their total wealth

HNW individuals understand that wealth management means more than portfolio construction. In fact, the report suggests some 85% of HNW individuals demand comprehensive financial planning and advisory capabilities from their financial professionals. To work with the wealthy, you have to offer more than stock picking. At the very least, you will need access to an estate planning expert, along with an accountant or tax lawyer. Whether these people join your practice directly or as professional partners is up to you — both models can work well.

We have an estate planning expert on our team and have strengthened our relationships with outside accountants and lawyers. These professionals offer specialized services and allow me to focus on what I do best: portfolio construction. The result is a well-rounded team that can offer comprehensive solutions to nearly any wealth challenge.

Knowing what the wealthy want from their financial professionals is a lot easier than it once was. But you can’t be complacent. Responding to HNW needs is a critical priority for all those looking to attract and retain HNW clients.

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Thane Stenner, CIM, FCSI, is a first vice-president and investment advisor with The Stenner Group&#8482 of CIBC Wood Gundy. The views of the author do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and Member CIPF. Thane can be reached at thane.stenner@cibc.ca.

09/12/03