Financial Services to Offer the Affluent, HNW, UHNW
I have been working with financial advisors and wealth managers since 2004. Of course, most of my clients would prefer to be working with more HNW and UHNW affluent clients, yet doing so requires a skill set that many don’t have.
What services are the affluent looking for from financial planners and wealth managers? What are the pain points and challenges they are facing that your financial solutions can overcome? If you wish to attract more HNW and UHNW affluent clients, you need to focus on solving their unique problems.
Affluent clients have spent years developing successful businesses and managing personal wealth that affords them more flexibility. Competition to help these clients is peaking. Banks and private wealth management firms rely upon affluent clients to bring home the majority of their revenue strategies. As long as you are willing to put in the work, you can rise above the noise of competition and engage with affluent clients.
This post will discuss several strategies to positioning your practice to better work with and target affluent clients. Remember that nothing worthwhile is easy to attain. You will find no quick solution here. While I do offer some great content, please recognize that you need to invest in your practice to grow. Understanding what the affluent are looking for in a financial planner and investment manager allows us to define their needs and then provide services that can fulfill them.
Time Over Money
Affluent clients have learned the value of time. They are no longer trading an hour of their life for a paycheck. They leverage and manage assets to ensure their business and financial instruments are garnering more revenue regularly. Their goal is to manage from the top down and having other people execute their decisions. They are so tied up in their business interests and fully committed to success that they have little time for longer meetings and exhaustive research.
This is where you can help. Every one of your services should be customizable and easy to understand in as little time as possible. You want to clearly demonstrate the value proposition you are offering affluent clients so they can quickly assess if it is suitable for their situation. The simpler you can make the process of working with you, the better response you will get from affluent clients.
Low risk, tax advantaged solutions
While we are on the topic of risk, let’s discuss investment philosophies. Many affluent clients consider themselves to be fiscally conservative. This has become even more important during the past few years as the general public reacts to challenging political, health, and social upheavals.
These clients are concerned about the safety of their wealth. They are looking for solutions that provide low-risk scenarios while also offering tax incentives to lower their obligations. The talking head hype of potential higher tax responsibility for the wealthy will not be going away anytime soon. You are serving your affluent client’s needs by addressing how they can best protect their hard-earned resources.
UHNW and HNW affluent clients have, on average, 50% of their assets in alternative investments. That is only likely to grow in the near future. These are tangible assets and commodities that tend to hold their value regardless of market fluctuations. That is why so many of these alternative investments appear challenging to obtain by the general public. They require a significant amount of personal investment and the ability to hold the asset for a more extended amount of time. They also provide a low-risk, fair return, which all affluent clients will appreciate.
An excellent vehicle to defer income taxes is through private placement. Affluent clients are flocking to private options that can protect their investments and portfolio growth. Both the private placement investment and life insurance opportunities share many of the same tax advantages. If you can offer a private placement vehicle that benefits a non-profit charity, then you are crafting an excellent investment opportunity that can alleviate many of the tax obligation concerns of the affluent.
Giving to charity or offering philanthropic opportunities to your affluent clients helps acknowledge a few needs. First, you are again addressing the tax situation as charitable giving is an excellent break. Next, you are empowering your clients to network with other HNW clients and organizations where they can further develop their business and goals.
Finally, you are addressing a critical component of their humanity that financial managers often overlook – their need to help. Charitable giving increased by over 48% during the recent pandemic era, and that is because affluent clients want to help where they can. They are used to finding solutions to problems. That is why they are so successful. Never forget that they have causes and interests that meet their emotional needs and financial security. We underestimate the value of care in UHNW clients.
Closely associated with philanthropic entities is the practice of investing in Environmental, Social, and Governance issues. Millennials, GenXers, and women are becoming the dominant investors in this sector because they feel responsible for helping others who are not as fortunate.
Considering these demographic groups are the most likely to inherit the wealth of their baby boomer relatives, it only makes sense that you align the goals of your financial practice with theirs. That does not mean compromising your beliefs, but it does mean providing avenues for these clients to pursue.
These investment vehicles offer better returns for wealthier clients because they cost less to operate. This makes them incredibly popular with affluent investors who tend to avoid complex opportunities because they recognize there is more potential for friction. They want an investment tied to an asset or index, so the outcome has greater predictability. Offering your affluent clients various structured products is a definite way to growing your practice.
Affluent clients are comfortable with debt. They are well accustomed to leveraging financial resources to grow their assets. That means they will quickly recognize a fair lending solution. That also means they will insist on customized products that fit their specific needs.
Affluent clients have spent years elevating their businesses and know they can demand more flexible and creative lending properties against their vast array of assets like business ownership, investments, real estate, and more. Meeting those creative needs provides your financial practice a lot more options of serving this level of client.
Services for the business owner
Successful entrepreneurs (in business five-plus years, annual business revenue above $500,000) often need assistance with their qualified and non-qualified plan investments. They want help with educating plan participants, staying in compliance with 404c requirements, investing the business profits, and investing their own income from the business. That’s why I am in favor of targeting this specific niche.
Entrepreneurs and those with high valued assets look beyond their current lifespan into the future where their kids or successors will take the reins. Providing them with the financial tools to secure that future as well as possible will strengthen your business relationship. In addition, this is a great instrument for opening the door to other products. You can start by protecting the future of their financial assets and family and then pivot to any other product, cementing your partnership. This also addresses the time-saving aspect that many affluent clients desire.
Two of the more important succession planning vehicles are Sophisticated Trusts/Charitable Remainder Trusts and Permanent Life Insurance. In these cases, there are certain guarantees that the wealth accrued by these affluent clients will be distributed to the intended targets no matter what.
I particularly like the Charitable Remainder Trusts because they often will have a name component of the planned giving that allows younger generations to enjoy the benefits and notoriety of networking from their namesake’s contribution.
Permanent Life Insurance avoids the messy challenges of probate. It ensures a future financial cushion for your affluent client’s heirs that goes beyond the control of their assets. These also help address the fear of taxes by providing them with ways to secure their wealth in ways that cannot be arbitrarily removed without significant legal authority.
One stop shop
Affluent clients want you to be the investment manager of their financial assets and the relationship manager for their entire financial situation. Their complicated lives need simplification and organization. Develop a system for communication with their Estate Planning Attorney, CPA, P&C agent, Life Insurance agent, business consultant, and any others. Offer this service, and you can capture more business from the affluent.
Keep in mind that you are providing a high-value service that should be saving your clients time and effort. You want to smooth out the process of working with your practice as much as possible so your affluent clients see the direct value of what you are offering. Creating financial access to each of these vehicles is a great way to start.
Quality over quantity
Affluent clients expect a certain level of trust and transparency in their financial managers. They will prioritize high-quality communication and relationships. They want quantitative data and credible information that clearly defines what they are investing in and how it will affect their personal situation. Their focus on content contrasts sharply with less wealthy clients who prefer to do business based on emotional relationships. The best way to mitigate those concerns is by providing clear, descriptive, and stark data for them to digest.
The family office is a sought-after service for the ultra-high net worth segment (UHNW $5million to $25 million). Russ Allan Prince is the expert on the family office and what it entails, but essentially wealth management firms with family office structures only accept clients with assets over $5 million dollars. The family office often manages financial planning, budgeting and bill paying, charitable giving, estate planning, and even business and wealth transfers.
To attract the affluent, you must have a professional office with excellent staff, proactive servicing, regular client review meetings, and the issues addressed above.
Other issues I will be covering in additional posts are:
A world-class brand and website
A comfortable office environment – not a board room
A client service experience unlike any other
If you are unfamiliar with growing a practice that targets the affluent, please request a consultation with me to discuss working on re-inventing your practice.