Look closely at the financial press targeting advisers and you'll find there's an implicit assumption that you should be pursuing high net worth clients. But is that really the case?
The reality of landing HNW clients
A focus on wealthy clients can be lucrative, of course, but it can also require significant investment.
A PriceMetrix study into the characteristics and needs of high net worth clients uncovered a few interesting points. First, advisers who want to work with high net worth individuals have to go out and find them. The vast majority of wealthy clients aren't cultivated over time as they grow into their wealth, they start out as "big fish." That means you'll be competing with countless other advisers for the same 5% or so of the total retail market.
Second, that competition doesn’t end after your client signs on the dotted line. Most wealthy individuals maintain multiple adviser relationships, meaning that your services are going to be constantly compared to those of other advisers.
To truly meet those service needs, you will almost certainly have to walk back your commitments to smaller clients. The study found that advisers who enjoyed more numerous and more productive high net worth relationships tended to have a lower proportion of small clients.
So how do you know if the investment makes sense? Consider these three factors in strategizing where to take your business.
Service
How hands-on are you with clients? Do you like a complex financial planning quandary, or are you happier helping clients navigate the (sometimes enormous) everyday challenge of sticking to the basics?
As you might imagine, high net worth investors tend to have more complex accounts and more complicated financial lives. That means more services – and more service. Rather than a quarterly review and a single commission-based account, your high net worth prospect might want a call once a week and a hybrid fee model.
In other words, the level of time, energy, and investment you’re willing to put into your high net worth clientele could make or break the endeavor. If your business runs well on a model that doesn’t line up with high net worth needs around time and services, consider whether it’s worth the investment.
Specialization
You could see a high upfront cost in pursuing HNW clients.
Similarly, if you’ve built a specialization in an area that simply doesn’t see many high net worth clients, you could see a high upfront cost in pursuing them. It can take years to build a solid network of prospect referrals, and reorienting your business for the prospect of potentially cracking a new market might not make sense.
That said, there are situations where tacking on a high net worth focus to an existing specialization can be a logical next step. For example, an advisor specializing in small business owners might consider branching out towards clients with larger privately-held businesses.
The idea isn't to limit yourself: It's to do a reality check. If you can leverage your existing specialization towards high net worth clients, it might be worth it - provided all the other pieces fit into place. If your specialization simply doesn't see a lot of high net worth prospects, the costs and benefits might warrant a more careful analysis.
Brand
As an adviser – as any business owner – the image you portray to prospects through your branding, communications, and even your website tells a story about who you are and what you’re capable of.
Depending on your specific goals, you might find that high net worth prospects are highly sensitive to this issue. That makes sense. If someone is wealthy, he or she will want to know that a potential adviser feels comfortable and capable around their needs, and can “speak their language.”
That doesn’t mean you have to go wild with redecorating and design, but take stock. Are you catering to the right clientele? Would you need to invest in a re-branding effort to underscore your value proposition? Most importantly, is this something you’d be willing to invest in and able to promote authentically and confidently?