The myth of the high net worth client

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Sep 27, 2009 10:09 pm

All the wires push the same drivel  of persuing 1 - 10mil dollar clients. The HNW client with sophisticated needs, and our amazing solutions to all their problems, blah blah blah. Outside of the major metro areas, there just are not a ton of people with a few million bucks. And in this overbrokered world, those that fit the mold have been prospected to death. Why am I made to feel inadequate because I have a ton of 400k - 800k accounts. I have seen the account stats of  a local 400 mil book. There are maybe 25 accounts over 1 mil. A few in the teens, a 22 mil account, and a handful of 2-4 mil, and gobs of 500k -900k. Some may refer to that last piece as bread & butter. Just because they say it... does not make it true. Especially after the worst economic environment since the depression, I would think one of these non unique firms would want to focus on this group. It's not my fault that it costs sooo much to cover the cost of bloated, redundent, frat boy management types. I have a healthy business with nice clients that pay a very good fee for the service. If all the majors want is uber HNW. Then they should only maintain offices in 10 -15 strategic locations, ala Goldman. Maybe that's what they are trying to do??? 

Sep 27, 2009 10:18 pm

Path of least resistance.

Everyone would rather have 10 clients with $10mm each then 200 clients with $500k each. However, I agree with you 100% there are only a handful of those HNW individuals and they'll never all be at one wirehouse vs. another.

IMHO we shouldn't move the model to only accommodate the HNW and UHNW to turn a profit, Cough UBS Cough Cough, because the chances of having all your advisers only gathering those types of assets is very slim. What they could do is build a profitability model that understands having numerous mass affluent accounts, $250K-$1million isn't so bad, and can be plenty profitable if done correctly.

Biggest problem with wires is that advisers are supposed to control their profitability without being able to control spending.

Sep 27, 2009 10:19 pm

Most truly HNW clients want more than the wirehouse will offer.

Sep 27, 2009 10:21 pm
borei:

Most truly HNW clients want more than the wirehouse will offer.



Exactly..

Now a days there are plenty of boutique RIA's that have a couple of CFA's and are specialized for HNW individuals.

Why would these groups ever want to give 50-60% of their commission to upper management...

Sep 27, 2009 10:50 pm

The source of the interest in pursuing HNW/UHNW comes from jealously watching private banks and trust companies bilk the Bruce Waynes of the world. But, the model has never proven to work on a larger scale, just like the 'financial supermarket'. It's a meme based on false assumptions, particularly that a wire house firm could come to dominate (40% market share) of the HNW space. Also - remember there really hasn't been that much wealth creation in the last 10 years - not a lot of new wealthy to provide all of that "family governance" training seminars.

Fact is, most UHNW clients who made their money (which means most of them), understand the leverage they have and use it.

Stick with the upper middle class who appreciate what you have to offer.

Sep 28, 2009 4:25 pm

I like them both.

Sep 28, 2009 4:55 pm
Insideman:




However, I agree with you 100% there are only a handful of those HNW individuals and they'll never all be at one wirehouse









No your 100% wrong. I USED to think this until Jamie et al told me to go after 1mm-10mm accounts.    

Jamie told me these people are SEARCHING for the witch-hazel 120 page to explain UBS packaged reverse repo s and p principal protected hedge alternative investments funds. This sets us apart!     

I cant wait to get all these accounts. I did that math and i will get MUCH more assets if each account has 7 figures.



(gaddock-your spot on)

Sep 28, 2009 5:38 pm

i have a handful of hnw accounts and they are a pain in the ass. Most of them are set up as mutigenerational trusts. Everyone has to give their input. Nothing is ever good enough. If I had a nickle for every stock tip I got from these people.

 
Maybe "old" money is more understanding of the way things work, but I got stuck with the people who feel like they won the lotto because grandma had alot of money.
 
I really enjoy working with the 250-750 crowd. Usually mom and pop store owners. Very appreciative of what I do. These are the people who send me christmas cards and insist on paying for lunch when I take them out.
Sep 28, 2009 6:34 pm

I like a mix. They say, "Don't subsidize your smaller accounts with large accounts", but the truth is, this is a marathon, if you're structured right, you can make a great living managing just 50m (less than full time)  and working by referral. 250 to 750 crowd is great, not very demanding, either.

Sep 28, 2009 7:24 pm

I agree to an extent.  You can only have so many 100K accounts though.  If your average account is TOO low, you end up having to add too much cost to service all the clients.  THink of it this way....if you have 20mm AUM, and your average acct is 100K, that's 200 clients.  That's an awful lot of clients to service for about 200-250K gross, without adding someone to help service.

 
 
Sep 28, 2009 7:26 pm

I agree $250K - 750K is a great market. very profitable market if you use package products

Sep 29, 2009 11:38 am

Ron Carson is telling us there is no competion for  the 5 million 

accounts and up.
I don't believe it.
 
I like working with the 200k to 700k group I seem to connect better with them.
Sep 29, 2009 11:45 am
B24:

I agree to an extent.  You can only have so many 100K accounts though.  If your average account is TOO low, you end up having to add too much cost to service all the clients.  THink of it this way....if you have 20mm AUM, and your average acct is 100K, that's 200 clients.  That's an awful lot of clients to service for about 200-250K gross, without adding someone to help service.

 
 
 
I think that if you look at households you will find it easier to segment your business. If I have a household of say 600K with a joint account, 2 Trad IRA's and a couple of Roth IRA's that is right at your 100K account size. If you have 20 mm AUM and your average HH is 300K then you have 67-70 HH's. Very easy to manage...... I don't look at the account size, I look at the HH size and manage from there.
Sep 29, 2009 12:14 pm

I should correct myself - when I say "account", I am really referring to "household".  I don't really differentiate the two.  Despite what Jones thinks, I don't care if I open one account for 250K, or 5 accounts for 50K each (in one HH).  It's one household.  So I guess my point was that you could only have so many 100K households.  Yes, 70 HH's at 300K is very manageable.  You would obviously need 3X that number of HH if your average was only 100K.

 
As a sidenote, I have read somewhere that your average houshold is typically 4X your stated minimum.  So, if your minimum is 100K, then your average HH will be around 400K.  That obviously will fluctuate, but I guess it sounds about right.  I roughed something out that made sense:
 
100 Households, minimum is 100K
75% of the HH are at an average of 200K
20% are at an average of 700K
5% are at an average of 1.5mm
This equates to an average HH of 365,000
 
This was totally off the cuff, but I guess it makes some rational sense.
 
Oct 1, 2009 7:17 am

not talking about 100k accounts. A business servicing 300 - 400 accounts between 400k and 1mil. is managable, and with average revenue very lucrative, yet becomming more, almost, discouraged at big firms. It's offensive and a clear sign of ignorance that the ppl who make up senior level "management" think Ultra HNW, 1mil or more, are easily attainable, and don't have many choices. 

Oct 1, 2009 9:42 am
B24:

I should correct myself - when I say "account", I am really referring to "household".  I don't really differentiate the two.  Despite what Jones thinks, I don't care if I open one account for 250K, or 5 accounts for 50K each (in one HH).  It's one household.  So I guess my point was that you could only have so many 100K households.  Yes, 70 HH's at 300K is very manageable.  You would obviously need 3X that number of HH if your average was only 100K.

 
As a sidenote, I have read somewhere that your average houshold is typically 4X your stated minimum.  So, if your minimum is 100K, then your average HH will be around 400K.  That obviously will fluctuate, but I guess it sounds about right.  I roughed something out that made sense:
 
100 Households, minimum is 100K
75% of the HH are at an average of 200K
20% are at an average of 700K
5% are at an average of 1.5mm
This equates to an average HH of 365,000
 
This was totally off the cuff, but I guess it makes some rational sense.
 
 
I am in total agreement with you B24. If your HH average is 100K or less you are going to have problems managing that book when you get to any decent size. It doesn't matter how many accounts you have in a household because you still only have 1 or 2 points of contact for decisions. I took a look at my old stats at Jones and current stats and I thought it was interesting:
 
Jones  Avg HH  $   64,300
LPL     Avg HH   $ 188,000
 
I have tripled the avg HH since I moved over. I knew that it would be larger but that was a little larger than I anticipated.
Oct 1, 2009 2:25 pm

Interesting.  My average HH is about 115K.  But I also never opened the B.S. accounts, and probably 25 of those households are SIMPLE's, that are brand new (each account is it's own household).  I see all these wires go out about these rookies opening 15 accounts a month.  Whoopie!  These same guys are only doing 7K gross a month.  Sure, if you want to wait 15 years to build a reasonable business, opening 1000 households of any size will get you there.

Oct 1, 2009 2:27 pm

When I was at Jones, we had a guy open 30 accounts/month. He was about a month ahead of me. When I left, he was still in Segment 2.

Oct 1, 2009 3:00 pm
noggin:
I am in total agreement with you B24. If your HH average is 100K or less you are going to have problems managing that book when you get to any decent size. It doesn't matter how many accounts you have in a household because you still only have 1 or 2 points of contact for decisions. I took a look at my old stats at Jones and current stats and I thought it was interesting:
 
Jones  Avg HH  $   64,300
LPL     Avg HH   $ 188,000
 
I have tripled the avg HH since I moved over. I knew that it would be larger but that was a little larger than I anticipated.
 
Wouldn't a large function of the descrepancy be that your Jones average HH covered the time that you were growing in your business knowledge?
 
And a secondary component ... when you left Jones, wouldn't it be safe to say all the guppies got left behind? I'd guess that significantly skews your results. I know that today my total avg HH compares to yours when you left Jones. But the top 50% of my book pretty much falls between yours and B24s.
 
 
Oct 1, 2009 3:09 pm

Locked, you are correct.  In the beginning, you HAVE TO take everything you can get, unless you are in a unique situation.  That is not a function of Jones.  The weakness is that many Jones guys never break out of that "any size account" rut.  My own regional leader has said he will take any account, any time.  And he does about 600K gross (he's only 34 also - started right out of college).  I think he's crazy, but that's the type of business he's willing to run.  He could NEVER leave Jones now (well, he COULD), because he makes money off volume.  He probably has 750 housholds at an average of 100K each.  Who would want to move all that?  And it probably means he needs two BOA's, which impacts his bonus.

 
If I left Jones today, and took all the clients I wanted, my average would be at least 175K.