Who do you want to work with?

(February 2004) So you want to focus your practice on the wealthy. A wise choice. Working with high-net-worth (HNW) individuals and families means greater remuneration, greater client stability, and more significant professional challenges.

But what kind of wealthy people do you want to work with? It’s an important question. Contrary to popular belief, not all HNW individuals think the same way about wealth. Nor do they share the same financial goals. Nor are they looking for the same things from their professional advisors.

From an advisor’s perspective, the ability to attract and retain the right kind of HNW client may well be the most important determinant of long-term success. So how do you select the right kind of client for your HNW practice? You do this by profiling HNW prospects and quickly determining whether they’re a good fit with your investment principles, your advisory capabilities and the individual personalities on your team.

The importance of psychographics The current term for this process is “psychographics.” There are a number of books and resources that describe it, along with its benefit to advisors. The best I’ve found is a series by Russ Alan Prince—High Net Worth Psychology, The Millionaire’s Advisor and Advanced Planning for the Ultra-Affluent—for example.

Below is an overview of the nine basic HNW personality types that Prince describes in his books. With each personality, I’ve given a grade, reflecting the overall quality of that personality to the advisor who’s looking to build a HNW practice.

The caregiver (Grade: A) Caregivers see themselves as stewards of family wealth. Typically, the caregiver is focused on goals rather than returns — that makes him or her the ideal client, having an interest in big picture planning, including estate planning, charitable giving and succession planning. As the leaders of family businesses, these people can also be excellent sources for referrals.

The independent (Grade: B+)When independents think of wealth, they think of freedom — from work, from bills and from worry. They tend to take a greater interest in the investment result than the investment process. That makes them prime candidates for “hands-off ” financial strategies, such as managed portfolios and principal-protected notes.

The entrepreneur (Grade: B) With the entrepreneur, money means power. In the right person, this can translate into a motivated, driven client who is attentive to detail and is willing to accept risk. But entrepreneurs can be impatient people, and can be prone to taking quick, decisive action. For the advisor, this can mean following direction rather than providing advice.

The runaway (Grade: C+) The runaway doesn’t want to be involved with wealth. For the advisor, this isn’t necessarily a bad thing — they tend to be low-maintenance clients and accept professional direction readily. Unfortunately, I’ve seen some runaways ignore financial decisions completely, leaving themselves without the most basic of estate, tax or retirement plans.

The recluse (Grade: C) The recluse values privacy and discretion. Even when working with a professional, it’s common for the recluse to withhold key information and maintain multiple portfolios. This lack of information can make it difficult for advisors to provide top-quality advice. However, once you establish trust with the recluse, you will have it for life.

The empire builder (Grade: C) For the empire builder, the primary purpose for working with a professional is to accumulate more wealth. This makes the empire builder open-minded and willing to invest in most anything, as long as the returns are attractive. As an advisor, you’ll constantly be defending your investment decisions, and client loyalty will only be as strong as the last quarter’s performance figures.

The stare (Grade: C-) For the star, wealth is the means to secure status. These clients are often more interested in spending wealth than building it. More often than not, this results in poorly constructed portfolios and an apathetic attitude to wealth management. Expect to spend a good deal of time “babysitting” this client. However, the star’s high profile may help your own marketing efforts.

The technician (Grade: C-) Technicians take pride in being “in the know” about financial topics. Their exacting attention to the minutiae of investing — they are constantly calculating ratios, analyzing statistics, and poring over performance figures — makes it easy for them to forget the big picture. You’ll be talking a lot about the technical side of the portfolio with this category of client.

The player (Grade: D) For the player, investing is a game. The constant pursuit of high-risk opportunities leads to a portfolio that lacks any clear purpose and fails to fit into any long-term strategy. It’s tough to imagine that a professional advisor would be able to satisfy the player’s need for excitement. Client dissatisfaction and professional liability are big risks here.

The summary Understand that the goal of psychographics isn’t to slot individuals into prefabricated portfolios. Rather, its purpose is to answer two important questions:

(1) What does money mean to this individual? and

(2) What does this individual want from his or her wealth advisor?

Answer these two questions, and you’re on the right track to making sure you attract the right kind of clients to your practice.

Thane Stenner, CIM, FCSI, is a first vice-president and investment advisor with The T. Stenner Group 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’s column is targetted for those advisors looking for strategies and insights for the high-net-worth investor. Thane can be reached at thane.stenner@cibc.ca.