Narrow Your Focus to Get Bigger Clients

Not all wealthy clients are created equal. Yes, we know, some are a lot richer than others. But seriously. According to new research, despite years of effort by financial advisory firms to force reps to focus on millionaire clients, less than a third of financial advisors have clients among this category.

Not all wealthy clients are created equal. Yes, we know, some are a lot richer than others. But seriously. According to new research, despite years of effort by financial advisory firms to force reps to focus on millionaire clients, less than a third of financial advisors have clients among this category.

The problem, according to Cerulli Associates, which produced the study “Navigating the Emerging Affluent Marketplace,” is that advisors have tended to approach the wealthy market as if it were a monolith.

“If you ask most wirehouse reps what kind of people they target as clients they’ll say ‘people with money,’” says Steve Gresham, chief sales officer for the private client group of Hartford-based Phoenix Investment Partners, and a frequent speaker on the wealth-management circuit. “Well, that’s like Kellogg’s saying they target people who eat breakfast.”

The Cerulli study examines the emerging affluent, which for the purposes of the report includes two tiers: those with investable assets between $500,000 and $2.5 million and those with between $2.5 million and $10 million. People in this group have a net worth between $1 million and $25 million, make up roughly 8 percent of American households, and control $14 trillion in assets. But surprisingly, Cerulli found that just 30 percent of the advisor population in its sample served such clientele. In order to take advantage of this underserved market and gain more such clients, advisors must develop a specialty says the report.

Cerulli says specializing in a certain type of client is the way forward, for instance the suddenly affluent—lottery winners, professional athlete rookies or people who’ve inherited or sold a business or got in on a hot IPO. These clients are looking for extensive financial and estate planning. Of the 30 percent of advisors who serve this two-tiered emerging affluent segment, says Cerulli analyst Judy Chase, 64 percent say they specialize in asset management; fewer than 6 percent say they specialize in retirement planning and even fewer said they offer wealth-transfer expertise. Estate planning and tax specialists were less than 2 percent as well.

“Advisors need to pick a segment and learn all it takes to serve them, from building a network of other professionals with similar expertise to getting involved in programs and events that cater to them—basically building the practice around them,” says Chase. Andre Cappon, founder and president of New York-based CBM Group, agrees that ambitious reps need to pare down their focus so they can increase the level of their service. He says while generalized financial planning remains a good foundation for all producers, the best producers continue to be the highly specialized ones ( see earlier story).

But developing expertise in a certain client profile or profession doesn’t happen overnight. One way to get the ball rolling is to identify a client in your book who is in the target category and ask him (or her) for advice. Ask what hopes and fears and goals motivate people in their situations—learn why a doctor may be more concerned about the value of his practice than, say, an accountant.

For John Rafal of Essex Financial Advisors, in Essex, CT, an independent RIA with approximately $2 billion in assets under management, one of his specialties (business owners) led him to what has become another specialty of his firm—small endowments and pensions. “A business owner client invited me to the board meeting because he was unhappy with the current advisor,” says Rafal, whose background in law and related experience with pensions eased his entry into institutional territory. “I’ve had a lot of cross-pollinations like that,” he says. A doctor client recently referred him to his eye care group’s $3 million pension. Rafal discovered all the money was invested in one fund. Since the asset manager was a well-known name, the client assumed he was being taken care of. Rafal now manages 270 small pensions and 25 small endowments.

Gerstein, Fisher & Associates, a New York-based firm with $650 million in assets under management, specializes in teachers and other academics who have complicated pension issues that need to be resolved during after roll over. “It started with an accountant we worked with who was a retired teacher,” says Michael Sanders, director of wealth management. Soon the firm was doing informational seminars geared towards the academic set and the rest is history.

Another example of a niche business is Christopher Street Financial, also in New York, which focuses on gays and lesbians. Its particular area of expertise is helping to plan estate transfers between unmarried partners. Given the unclear legal status of these types of relationships in many states, this special knowledge makes Christopher Street a valuable resource for wealthy same-sex couples.

How do you find your focus? Philip Palaveev, a consultant with Seattle-based Moss Adams, says to start by vetting your client base. “Which of your clients have truly unique needs?” A category like “business owners” is too vague, says Palaveev. “Minority small business owners is more distinct,” he says. He also cautions advisors not to advertise what they don’t have. “If you offer tax advice to small business owners, it’s not enough to say you know a CPA—it has to be integrated into your practice,” he says. Other potential offerings to business owners are expertise include succession planning, liquidity creation and asset allocation strategies that incorporate the value of the business—something most advisors don’t know how to handle.

Says Palaveev: “Segmentation and niche strategies are going to emerge more and more. All clients, but especially wealthy ones, want to work with advisors that work with people like them and know what they need.”

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