The ultra affluent expect a great many things of a wealth manager, although their priorities might not be exactly what one would expect. Success in the wealth management business requires that a wealth manager recognize that the model that works in the institutional world does not necessarily translate well to the world of the ultra affluent.

Consulting to the ultra affluent — those with $25 million plus in liquid assets — requires an understanding of what the ultra affluent are looking for in a wealth adviser. The first step is for a firm to differentiate itself regarding the platform that is offered, the process that is used, and the people who are hired. It is also important to think about marketing and brand building in order to create an exploitable niche. This article summarizes some of the ideas in a 2008 CFA Institute Conference Proceedings Quarterly article.

How to Differentiate a Firm
Why are people willing to pay $4 for a cup of coffee at Starbucks when the beans cost about a dime and the cup itself costs about a nickel? Some suggest that it is not the quality of the product or the people serving the coffee but, rather, how a person feels when walking into a Starbucks. The company differentiates itself by being trendy, playing nice music, and staying on the cutting edge. So, the $4 is not just for a cup of coffee; it is for the whole experience.
In terms of delivering a differentiated offering to the ultra affluent, a firm needs to try to be the “Starbucks” of wealth management. It has to offer something beyond its performance and claims of being client focused and service oriented.

A 2004 survey by Institute for Private Investors (IPI) gives a clear picture of what the ultra affluent expect in wealth managers. They expect their advisers to be good in philanthropy, banking, governance, legal matters, tax planning, investments, and administration. Services offered need to include succession planning, managing family foundations, and even art advisory. Great customer service requires the adviser to be personal, proactive, stable, transparent, responsive, and knowledgeable. The important qualities in a wealth manager are product access, relationships, no conflicts of interest, high-caliber advice, and a high level of trust. Finally, fewer than 10 percent said that their wealth manager needed no improvement (see Figure 1).

What is the difference between being satisfied and unsatisfied? Another recent survey shows that satisfied clients hear from their primary adviser 28 times a year, or a little more than twice a month, and it might be a phone call, an e-mail, a fax, a newsletter, a research report, or just a quick hello.¹ Unsatisfied clients hear from their primary advisers fewer than 17 times a year. The difference is only “touches” — a little more than one per month. So, the lesson I take away is to stop worrying about finding your next small-cap manager. Pick up the phone and call your clients.

The ultra affluent want it all. They want it now. They want it cheap. And they want the best.

How to Give Them What They Want
What can organizations and individuals do to deliver all that the ultra affluent are asking for? To answer that question, I adapted a framework from an executive recruiter based in New York City, Allan Starkie, called the three “P’s” — platform, process, and people.²

Platform
Consulting to individuals evolved directly from the institutional consulting model, which focuses heavily on asset allocation but is insufficient for the ultra affluent. Building a platform for wealth management versus just investment management means delivering thoughtful and forward-looking asset allocation, customized portfolio construction, true open-architecture manager selection, integrated wealth planning, tax-effective portfolios, increased use of alternative investments, and consolidated performance reporting. Not offering these services has become a negative differentiator, and having them is now necessary for even getting a seat at the table. The independent and boutique investment advisory firms have known for years that customization and open-architecture manager selection are what the ultra affluent want, and brokerage firms and banks are rapidly jumping on that bandwagon.

Because asset allocation is subject to the constraints and assumptions made with respect to the inputs, there are no right answers, only defensible answers. Not only does the asset allocation need to be defensible, but it also needs to be sellable. The asset allocation has to be something people want to buy, and right now, what the ultra affluent want to buy is “the endowment portfolio” — that is, they want their portfolios to look like those of Yale University, Harvard University, Stanford University, and so forth. Why? Because that is where the performance has been. They want endowment-like portfolios, which means a heavy allocation to alternatives.

Comprehensive wealth management also means providing access to attractive loan rates, top-quality estate planning, high-quality trust services, internal or external bill paying, record keeping, tax preparation, and so on. The key word is “access.” A firm does not have to do it all in-house; it just needs to be able to offer access to top-quality providers of multiple services. This has been a primary driver of the trend toward outsourcing in the wealth management business; firms are focusing on their core competencies and outsourcing everything else they need to deliver a comprehensive service offering.

Process
The traditional model for dealing with high-net-worth clients has been the salesperson/portfolio manager approach. The salesperson finds the clients, turns them over to a portfolio manager, and then, the portfolio manager takes care of the clients’ money. Portfolio managers may be good at managing people’s money, but it is the very rare portfolio manager who is also good at managing people and client relationships.

As a result, the industry is migrating toward a relationship manager/support team structure. In this approach, a people-centered person, the relationship manager, works directly with the client and is supported by experts in the various fields needed to deliver the access required for comprehensive wealth management. In my experience, families and wealthy investors do not expect the relationship manager to know everything, but they do expect that person to know how to get the answers to all their questions, either internally or externally.

People
Analysis has shown that many individuals possess the necessary skills to be either a good client relationship manager or a good salesperson, but only a very small number are good at both.³ So, it is necessary to have both business development officers (BDOs) and client relationship managers (CRMs). It is similar to the banker versus broker comparison. A good BDO must possess more depth than simply an outgoing personality and perseverance. And good CRMs must be more than just paper pushers or order takers; they must be able to harvest internal referrals, work their network of clients and centers of influence, and generate business. Although they have very different skill sets, it is typically much harder to find a good BDO than a good CRM.

As the industry becomes more specialized and clients expect their wealth managers to be more responsive to a wider variety of needs, we will see (and, in fact, are already seeing) a dramatic increase in the “credentialization” of industry professionals. Clients are going to start looking at the letters after a name — CFA, CPA, CIMA, and so on — and they will understand what those designations imply. This credential awareness will have ramifications within firms. At the individual level, advisers will need to be certified or at least have a strategic plan for continuing their professional education to advance within a firm. Firms will also find that existing and prospective professionals will demand opportunities for continuing education and expect it as a part of their overall benefits package.

Marketing, Segmentation Strategies, and Branding
It has been said that there has never been a segmentation strategy in wealth management that has failed (e.g., there are firms that focus on telephone pole workers and others on the divorced spouses of Silicon Valley executives); a firm can succeed if it can identify a niche market that is narrow enough to dominate yet deep enough to be sustainable and then become the “go-to” brand in that segment.
As the high-net-worth market becomes more commoditized, it will become more segmented, and success will be driven by identifying the right target markets, creating a unique brand within those markets, and building an affinity-driven community of clients. In my opinion, a successful segmentation will be less demographically driven (e.g., net worth or income striations) and more affinity driven (tapping into a deep pool of investors who share a common passion — auto racing, yachting, the arts, religion, and so on). Finding that niche and becoming “the” brand for that segment will be a key to success.

A successful segmentation strategy also means saying no to clients who do not fit. For example, at a firm where I previously worked, we calculated how much money was being made or lost with each individual client and found a handful of clients that the firm was losing money on. Paradoxically, they were usually the larger clients. We raised the fees for some of the clients and had almost no attrition. The clients who could not absorb an increase were released. There were some clients that were never going to be profitable for us, no matter how much they paid us; they simply demanded too much of our time and resources. We had to refer those clients elsewhere.

Conclusion
Ultra-affluent families demand objective and consultative wealth management. Today, few products cannot be outsourced, and it is increasingly difficult to differentiate yourself based solely on your investment offering. The good news is that technology improvements allow for a much more seamless integration of outsourced solutions. Niche players can act as outsourced service providers, and specialization means differentiation and higher margins.
So, success can be driven in a fairly straightforward way. To borrow a phrase, here are the “seven steps to highly effective wealth management”:

1.  Identify and exploit a market niche
2.  Deliver a differentiated solution
3.  Build a unique brand,
4.  Charge the clients appropriately
5.  Seek “trusted-adviser” status
6.  Be a wealth manager, not a portfolio manager, and
7.  Outsource noncore competencies

Using all these strategies will help firms consulting to ultra-high-net-worth clients deliver the experience and become the “Starbucks” of wealth management.

Scott D. Welch is senior managing director and member of the executive committee at Fortigent, LLC. He manages Fortigent’s Investment Research and Strategy Group, chairs the investment committee, and serves as the firm’s concentrated wealth specialist.

Figure 1. High-Net-Worth (HNW) Investors’ Expectations for Wealth Managers

Source: IPI Surveys (2004).