Lots of advisors want to reposition their firm to work with high-net-worth clients or even start a new one aimed at households with deeper pockets, but that’s often easier said than done.
For a glimpse of what it takes to turn an existing advisory firm into a go-to place for high-net-worth clients, just look at Lisa A.K. Kirchenbauer.
About 15 months ago, the founder of Omega Wealth Management in Arlington, Va., started to get serious about repositioning the 12-year-old firm. “Our goal has been to work with fewer, wealthier clients and be able to do a better job for them,” she says. She already assigned small accounts to other advisors in the practice, but now she also started handing over bigger accounts who didn’t meet her $5 million in investable assets minimum, joined a wealth-management coaching program, embarked on a more sophisticated outreach system to attorneys and CPAs, and studied everything she could about how to win and keep more affluent clients.
While still a work in progress, the results, she says, are promising. The firm gets most of its revenues from an annual fee it charges clients—and many more new accounts brought on this year are paying $25,000 to $35,000 versus the $10,000 or so of earlier years. And referrals from clients and outside professionals are leading to consistently more affluent households. “So far, so good,” she says.
As Kirchenbauer can tell you, getting started requires retooling just about every aspect of the practice, from the services provided to marketing tactics. Plus, it won’t happen overnight. “This is a long game,” says Tony D’Amico, managing partner of Fidato Wealth, who started the process of targeting wealthier clients about five years ago. Since that time, assets have grown from $142 million to about $300 million today.
Shaving Off Clients
Pinpointing the type of clients to keep and the prospects to cultivate is an important starting point. Setting a minimum amount of investable assets is one criterion, but so are other factors, like how the clients got their money. For example, business owners are a prime target. “They have the highest concentration of wealth,” says John Bowen, founder and CEO of coaching firm CEG Worldwide. Three out of four households with investable assets of $5 million to $25 million and nine out of 10 with $25 million or more are held by business owners, according to Bowen. He also recommends targeting top executives at successful companies.
At the same time, advisors typically need to whittle down the number of clients they serve. Wealthier households with more complicated financial lives require—and expect—more time-consuming work and attention than those of more modest means.
In 2018, Kirchenbauer started moving her smaller accounts to one of the four other advisors in the firm, ramping up the process in 2020. “I needed to make room for my new clients,” she says. Since earlier this year, she’s reduced her personal client list from 80 to 55 relationships. While there might come a time when she needs to move some accounts to a different firm, she hasn’t done that yet.
To explain to clients why she was switching them over to someone else, Kirchenbauer mapped out a simple, straightforward and honest script: Thanks to rapid firm growth, as well as her duties on the Financial Planning Association board, she had to reduce the number of clients she saw. Plus, before making the switch, she started including other advisors in client meetings. “They’re not getting somebody they don’t know,” she says.
As for D’Amico, he spent two intervals during a period of almost two years moving about 100 clients to an advisor at another firm he felt was more appropriate. Now his practice serves about 220 households.
Another important step is adding services high-net-worth clients value to the mix. Bowen advises his clients to focus on four key areas: taxes, taking care of heirs, asset protection and charitable giving. “Once you get to $5 million and above, the topics you cover and the conversations you have with clients are very different,” says Kirchenbauer.
Advisor Chris Ward, who recently started his own practice after 15 years at several brokerage firms, is shaping his client services process around tax strategies, focusing second quarter meetings on evaluating returns, in addition to discussing tax topics throughout the year. “I may not be preparing their taxes, but I can tell a client that it’s time to make an S corp. selection and explain the implications of making that transition,” he says.
Mark Bodnar of RIA Octavia Wealth Advisors adopted another approach. He and his seven colleagues launched their firm in June 2020 primarily to give high-net-worth clients access to private and alternative investments they couldn’t offer at their previous firm. “We have tools we never had before,” he says. It’s not a fast approach. They’ve spent much of the last year moving over existing clients, most of whom have chosen to make the switch, and working with specialist firms to understand the investment landscape and do due diligence.
For households in the $8 million to $25 million range, Shannon Spotswood, president of RFG Advisory, recommends advisors emphasize something surprisingly straightforward: helping clients get organized. “You’re going to be the Marie Kondo of finance,” she says. According to Spotswood, households in that group tend to have a variety of private investments, LLCs and other holdings, but no central point of contact. “People usually have their estate planning documents together, but everything else is all over the place,” she says.
One obvious way to understand what services prospective accounts want is by interviewing existing clients who fit the preferred profile. Take Paul West. Two years ago, he started rolling out Carson Private Client, a new unit within RIA Carson Wealth Management Group, with $5.6 billion in assets, to serve high-net-worth clients. To pinpoint just what those individuals needed, he turned to Carson’s advisory council, a group of eight existing and prospective clients.
From those discussions, he learned, for example, that clients wanted him to assume a central role coordinating and communicating with other professional advisors, such as CPAs and attorneys. Plus, they asked him to create a portal for storing and easily accessing financial documents.
At some point, upping their game means that advisors have to add to their team. “This is a differentiated service for a higher level of client, so I had to add a lot of services and people,” says West. That included advisors who had previously worked with wealthier households, as well as specialists with a Chartered Advisor in Philanthropy designation or a Certified Exit Planning Advisor credential. But it also requires beefing up support staff. West added operations, tax and other service people. Total staff is now 12.
Over the past seven years or so, David Hill, managing director, investments with Integrated Wealth Solutions of Raymond James in Orlando, Fla., has added four people to the team, ranging from a financial planner to an employee who heads concierge services for families with $5 million and above, including such features as planning family events and working with donor-advised funds.
Centers of Influence
Referrals from existing accounts are an important source for new business. But, hands down, the most crucial approach is cultivating relationships with estate planning attorneys, accountants and other professionals, according to advisors and consultants. While only 18% of advisors in a recent survey said they got most of their clients from centers of influence, most sourced their top five clients from COIs, according to Bowen.
To strengthen relationships with COIs, Kirchenbauer runs what she calls a virtual family office network. First, she interviewed and vetted CPAs, attorneys and insurance professionals who seemed to be a good fit. Then, she started meeting with small groups periodically to review client cases and brainstorm ideas for addressing their problems. “All the while, I’m building relationships with these folks in the hope that over time they will refer me to their high-net-worth clients,” she says.
It’s beginning to pay off. According to Kirchenbauer, this year she’s started to get a “much higher level of referrals” from COIs.
Additionally, she says the hour-long discussions reveal approaches and suggestions she would never have thought of before and her clients really like. At one recent meeting, for example, they discussed a client who wanted to tear down an existing house and build a bigger one on his property. A CPA suggested they tap a nonprofit that trains recently incarcerated people to be carpenters and delivers waste material to another group that uses or recycles it, which allows clients to take a significant tax deduction. As for the COIs themselves, they also gain access to interesting ideas they can use in their own practices.
Since 2018, D’Amico has met every quarter with five outside experts, along with three employees, to focus on a particularly complex client case. “These meetings have strengthened relationships with our clients and increased the number of referrals they provide,” he says. “It’s been a game changer.”