Summer of Dough

The biggest hurdle for advisors who want to swap their high-net-worth clients for ultra-high-net-worth clients is convincing the target customers that they are understood. This, of course, is not an easy task if for no other reason than because are deluged with people trying to become more familiar with them and their money. Still it's worth making the effort. One place to start is in appreciating

The biggest hurdle for advisors who want to swap their high-net-worth clients for ultra-high-net-worth clients is convincing the target customers that they are understood.

This, of course, is not an easy task — if for no other reason than because “ultras” are deluged with people trying to become more familiar with them and their money.

Still it's worth making the effort. One place to start is in appreciating the differences between the wealthy and the very wealthy.

Over the past few years, our research has shown that the more money clients have, the more preferential treatment they expect from their financial advisors (and everyone else who works for them, for that matter). The ultra-affluent don't want mutual funds; they want hedge funds. They don't want donor-advised funds; they want a private foundation. They don't want Fords; they want Ferraris. No surprises there.

In the Club

Our research has also shown that it's essential that the ultra-affluent believe their financial professionals have clients like them and that those professionals know how to get them into the right hedge funds and into private equity investments that are off the radar. When people inherit millions, one of the first things many of them do is drop their old financial advisor in favor of one who has more experience with the kind of wealthy client they have suddenly become.

This, of course, leads to a textbook conundrum: If you don't already have very rich clients, how do you land the ultra-affluent prospects who want to be sure you've worked with people like them? There is no magic formula for success here, but one good way to become more familiar with the needs and wants of the ultra-rich is to examine how they spend money.

To the same extent that millionaires are different from hundred-thousandaires, the ultra-affluent are different from millionaires. Earlier this year, we conducted a survey that showed us just how different they could be when measured by how much they expected to spend this summer and what they were going to spend it on.

In our research, we interviewed a total of 429 millionaires, 338 of whom had a net worth of between $1 million to $10 million, while the other 91 (the ultra-affluent) had a net worth of $10 million or more. We ranked each of the two groups based on how many of them were going to spend on a particular activity, say a luxury cruise or a villa rental, and how much they were likely to spend on that activity. Let's look at some of the results (ranked on the basis of the percentage of ultra-affluent investors who were going to do a given activity).

What did our survey tell us? First, it must be nice to have this kind of disposable income. Second, it underscores just how different the rich, as a group, are from the rest of us mortals. Even the lesser millionaires spend five figures on villa rentals, luxury cruises and vacation home rentals. Third, and most importantly, we can see just how different the ultra-affluent are from their less wealthy counterparts.

My Name is Elmer J. Fudd, Millionaire…

The most that any of the mass affluent expects to spend on any one activity this summer is $29,000 on vacation home rentals (a healthy 38.2 percent expect to do so). In contrast, there are seven activities that the ultra-affluent expect to spend more than $50,000 on this summer, topping off at $266,000 for yacht rentals.

This is important, but there is even juicier stuff buried in the data. For instance, our research shows that almost every ultra-affluent respondent expects to donate aggressively this summer — an average of $47,000 per respondent is earmarked for charitable contributions. That means that the ultra-affluent are likely interested in hearing about new tax legislation pertaining to charities, new approaches to forming a private foundation and the latest on charitable remainder trusts.

To take another example, when someone is set to spend better than $100,000 on redecorating, it might help to know what's hot at the Milan Furniture Fair. And if they're going to spend $82,000 on an experiential excursion, they'll want to know which winery to visit in Bordeaux, which archeological dig in Petra they can participate in or which remote tribe in New Guinea they can break bread with. Likewise, it can help to know about the trendiest spa, the most coveted limited-edition watch, a secluded villa on Pantelleria and the mega-yacht with the best swimming pool.

Keeping up with the lifestyles of the rich, and what they're spending on, is not easy. One has to browse magazines or, better yet, network with high-end advisors who have ultra-affluent clients. But being well informed about how and where the ultra-affluent are spending their money can pay off should one get the opportunity to meet with them.

And remember, once one ultra-affluent client is on board, it will be that much easier to land the next.

Writers'

Russ Alan Prince is president of Prince & Associates.

Hannah Shaw Grove is managing director at Merrill Lynch Investment Managers.

SPENDING THE SUMMER

Hot-months purchasing plans of the wealthy and ultra-wealthy
Activity Ultra-Affluent Affluent
Spenders Avg. Amount Spenders Avg. Amount
Charitable giving 98.9% $47,000 82.0% $2,000
Apparel/accessories 95.6 10,000 89.9 3,000
Entertaining 91.2 34,000 98.8 4,000
Luxury hotels 90.1 20,000 71.3 4,000
Wines and spirits for entertaining 87.9 22,000 87.3 5,000
Luxury resorts 84.6 19,000 61.8 6,000
Wines and spirits personal use 78.0 8,000 84.0 5,000
Luxury spas 64.8 32,000 69.2 3,000
At-home spa service 52.7 23,000 26.3 4,000
Outside spa service 50.5 41,000 41.1 5,000
Audio/visual equip. 47.3 11,000 74.3 1,000
Jewelry/watches 46.2 55,000 60.1 8,000
Luxury cruises 37.4 62,000 38.8 18,000
Redecorating 34.1 114,000 60.4 5,000
Villa rentals 29.7 81,000 23.7 25,000
Experiential trips 23.1 82,000 14.5 7,000
Yacht rentals 14.3 266,000 0.0 0
Vacation home rentals 8.8 80,000 38.2 29,000
Source: Prince & Assoc.
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