When asked why he robbed banks, Willie Sutton allegedly replied, "Because that's where the money is."
He later denied saying that, but the sentiment certainly has been echoed by legitimate businesses and consultants for years. And it can be said of the focus on the high-net-worth segment by much of the financial services industry.
If you define high-net-worth as individuals or families who have at least $1 million in financial assets, there are an estimated 11.0 million of them, according to the latest World Wealth Report from RBC Wealth Management and Capgemini. And they hold a combined $42.0 trillion in assets.
It would seem natural that the big brokerage firms and banks would have an ironfisted grip on this market. After all, they have the products, the expertise and the resources to attract these relationships. But a recent study conducted by Cerulli & Associates found that the four wirehouses dropped from 56% of the HNW market in 2007 to 45% now. Moreover, they are projected to fall to 42% by 2014.
It turns out, the HNW business is pretty much like all other segments — it's about the relationships with the FA that really matters, not the firm. And with many FAs leaving the majors over the past few years, they've been taking their HNW relationships with them to independent and RIA firms.
Before targeting HNW clients, it's a good idea to understand some of the basic characteristics of this group. A study by the Spectrem Group found that fully 93% had college degrees and 58% had advanced degrees. The average age of the group was 67 and 47% of them were retired.
Perhaps not too surprisingly, given the current market volatility and uncertainty, HNW clients have become more conservative. Fully 25% say that it is more important to protect their principal than grow their investments.
But how do FAs get these relationships in the first place? With so much competition among firms and FAs, financial planners, trust companies, hedge funds and investment advisors, is it even possible for a bank advisor (not already in the HNW group of a major bank) to build HNW relationships? The short answer is yes. But it isn't easy.
To build HNW relationships bank FAs have to think like Willie Sutton and go where the money is. For some FAs, that can mean building strong internal relationships within the bank. Jumbo mortgages, trust services, business/commercial lending, all these areas have existing bank officers with relationships with HNW clients. Outside the bank, "centers of influence," attorneys and CPAs are great sources for referrals. And, of course, in every community, large and small, there are country clubs, charitable organizations and other groups that attract the HNW. Joining these groups, donating time/money, or sponsoring or speaking at events for these groups can be a great way to gain visibility and credibility.
There are myriad strategies for getting in front of HNW prospects, but clearly, that isn't nearly enough. To build HNW business and relationships, bank FAs must have something these people need — and that something is knowledge.
That knowledge can take two forms — product/strategy related, or client/group specific. HNW clients value expertise that can help them make better investment decisions and they are willing to pay for it.
Whether that expertise is about tax-efficient investing, municipal securities or international diversification, HNW investors want more than the basics. And all the recent volatility and global uncertainty has only increased their concerns. As an example, a recent survey conducted by Nationwide Financial revealed that nearly half of HNW Americans who are close to retirement are "terrified" of what health care costs may do to their retirement plans.
To be a client- or group-specific HNW advisor is to become an expert in the needs of specific categories of HNW clients. Indeed, there are entire HNW "boutiques" focused exclusively on doctors and athletes. Many FAs in these firms were doctors or athletes themselves, so they have not only an understanding of their prospects, but also access to past associates for business and referrals.
It is still possible to be successful in a niche so long as the FA really understands how these people feel, how they work and how they manage their businesses. Again, it's a matter of positioning yourself as a problem-solver who has the knowledge and understanding to deliver solutions.
Two additional keys to success in the HNW space are no different than success in any other area — providing great communications and asking for referrals.
FAs need to be certain to communicate meaningful information to HNW clients to demonstrate adherence. Yes, communication is important, but just calling to say hello is a waste of your time and theirs. Whether it's by email, phone or face-to-face, make sure what you say is relevant and demonstrates your understanding and expertise of the products, solutions and strategies you've agreed on. (And by the way, not returning phone calls in a timely manner was the top reason investors fired their FAs, according to the Spectrem Group study.) As for referrals, yes, you have to ask. But if you're doing your job well, HNW clients will be happy to give you names.
The single most important thing a bank FA can do to make it as a HNW advisor is to think and act like one. Tell everyone what you do — help the wealthy protect and grow their assets. Establish account minimums and stick to them. Be selective with whom you do business. Understand your products and services inside out. Develop a mission and a value statement that reflects who you are and how you do business.
Once you've made yourself a HNW advisor, you can get out into the community and begin the real work.
Paul Werlin is president of Human Capital Resources Inc.