By Austin Philbin
For many advisors, creating a practice of ultra high net worth (UHNW) clients is an aspirational goal, one that allows for significant growth of assets, the ability to solve complex issues and a lower number of households required to sustain the business. But for many advisors, UHNW clients can be as elusive as a mythical unicorn.
But unlike unicorns, UHNW clients do exist, and I have observed some of the strategies employed by successful advisors serving them. These are five ways to prepare your practice to target these types of valuable yet elusive clients.
1. Correct Mental Framework Around Time Frames
Generally speaking, significant wealth is not created overnight (discounting phenomena such as winning the lottery). In a similar fashion, expectations around creating an UHNW practice should be tempered—it simply won’t happen overnight.
The most common challenge facing practitioners in this realm is thinking about time frames. Each prospective client should be examined along the following factors: potential future investable asset base/net worth, time frame for wealth creation (base case, best case, worse case) and effort required to demonstrate value. Using the base case of time frames to build a pipeline should provide some level of predictability around cash flows to the business and the direction of prospective client energy. Since this client sector has a greater need for attention, carefully managing bandwidth (especially in the prospecting phase) is critical.
2. Value Proposition in an Upside Down Model
Once time frames are established, the second significant hurdle is value proposition. More specifically, in an environment where advisors are compensated for providing advice on investable assets, how can one create value for individuals who could be UHNW in the future but currently are not? Take the elite athlete or entertainment client—tremendous annual earnings, extremely tight community creating a much stronger referral-based model and a definite need for high-quality financial advice. However, at the beginning of these individuals’ careers, often when they need advice the most, the model for charging an advisory fee on investable assets does not work.
A similar dilemma can be observed with business owners. They may choose to redirect their cash flow back into their business rather than invest, or there may not be a clearly defined exit strategy. In both cases, the standard investment management approach will not work. What does is a clear value proposition that works with the client’s time frame and bridges the liquidity gap. For the athlete or entertainer, actions like bill pay, mortgage identification, vehicle acquisition assistance, tax preparation, banking and credit structures may all be helpful. For the business owner, it can be things like gifting strategies for estate planning purposes, investment banking introductions and cash management.
3. Meeting the Minimum Barriers for Entry
A strong team is incredibly important to servicing the UHNW space. Deciding the best resources to bring in-house and those to outsource can have a huge impact. Advisors in this space need to provide clients with investment management, trust services, philanthropic guidance, estate planning, bill pay, concierge services—the list goes on.
Providing solutions for each is a minimum barrier for entry. What is not a barrier, however, is having expertise in-house in each area. The age-old maxim, “It’s not what you know, it’s who you know,” rings true in the UHNW space.
4. Careful Diagnosis of Family and/or Structural Relationships
The ability to understand the complexities around family dynamics is often critical to successful client acquisition and retention in UNHW space. There may be one or several members of a family that create and grow the wealth, and others that branch off to do other things—sometimes positive and sometimes negative. This can apply to the business “family” as well.
Understanding how individuals within the family interact with each other, the optimal methodology for conveying information (which will be different based on the recipient), how to bridge gaps between generations and how to handle challenging conversations are all important skills to possess in order to work well with the UHNW.
5. Removing Complexities
UHNW clients generally have a desire for clarity around their financial advice. Since oftentimes their business and personal lives are so complex, having trusted partners who can help manage their capital in a prudent manner is important. At Dynasty Financial Partners, we believe in the triangulation of advice—a clear segregation between where assets are held, where advice is delivered and where products are manufactured is a better model for this client sector.
In summary, advisors looking to enter the UHNW space must be willing and able to solve complex financial and nonfinancial challenges, to be open-minded about their compensation model, to create time frames suitable to sustain their practice, while exhibiting the required patience to gain the trust of the prospective client, and finally, to have patience.
After all, if you are going to capture a unicorn, you’re going to need to be patient.
Austin Philbin is director of the Western division at Dynasty Financial Partners.