How financial advisors can engage and manage high-net-worth clients

How financial advisors can engage and manage high-net-worth clients Apr 24, 2024 12:20:30 PM In this guide, we’ll walk you through ways to better serve high-net-worth (HNW) households, including how to attract and retain their business. By 2027, it’s estimated that there will be over 26,000 millionaires in the United States according to Credit Suisse’s Global Wealth Report. These wealthy households pose a rewarding opportunity for RIAs looking to grow their practices by serving the unique needs of this demographic. In this guide, we'll walk you through ways to better serve high-net-worth (HNW) households, including how to attract and retain their business. In this guide, we’ll walk you through ways to better serve high-net-worth (HNW) households, including how to attract and retain their business. Table of contents: The basics: What is a HNW individual or household? The benefits of serving HNW clients What makes HNW clients different? What services do HNW clients look for from RIAs? How do financial advisors attract HNW clients? Simple tips for maintaining HNW client relationships The basics: What is a HNW individual or household? A HNW individual or household typically refers to those with liquid assets over $1 million but is commonly broken down into three levels of wealth: HNW (High-Net-Worth): HNW individuals typically have investable assets ranging from $1 million to $5 million, not including primary residence and other non-liquid assets. VHNW (Very High-Net-Worth): VHNW individuals are those with investable assets in the range of $5 million to $30 million. UHNW (Ultra-High-Net-Worth): UHNW individuals possess investable assets exceeding $30 million. Additionally, HNW clientele includes anyone who meets the SEC’s definition of a “Qualified Client” having $1,100,000 in assets under management or a net worth of $2,200,000. The benefits of serving HNW clients For financial advisors, working with HNW clients may provide three distinct benefits. Greater revenue potential: HNW clients typically require a more extensive range of services compared to the average client, and can be willing to pay more for the value you provide as their advisor. Additionally, these relationships can last years or even span generations within families. Professional growth: With more complex needs, HNW clients may present you with unique challenges from client to client. This can require you to dive deeper into the intricacies of financial planning, including tax and estate planning, to effectively manage their financial transactions. Referral benefits: HNW clients often have extensive networks and connections in their communities. As you build strong relationships with your HNW clients, you may see a spike in referral business and organic growth. Serving clients of all backgrounds can be a rewarding experience. What’s important is your goals as an RIA align with the goal of the target market you desire to serve. What makes HNW clients different? All clients have unique needs, but expectations and need for guidance may increase as a household’s wealth grows. HNW clients often demand a higher level of service and commitment. Consider the following as you develop strategies to serve HNW clients: Tailored advice for complex scenarios: From investment advice to tax planning—and a lot in between—HNW clients value bespoke, 1:1 advice to help grow and preserve their wealth. Responsiveness to urgent needs: HNW clients may also expect proactive and prompt responses to potentially urgent financial matters. Be prepared to help them navigate decisions as they arise—potentially outside of a typical nine-to-five schedule. Greater involvement in planning: HNW clients choose to work with advisors for their expertise, but many want to feel more involved in planning decisions given they typically know what they want, but not how to get there. Pro tip: During the onboarding process with HNW households, explain how you’ll work with them, how they can reach you when needed, and how you’ll involve them throughout ongoing planning processes. What services do HNW clients look for from RIAs? HNW clients look to financial advisors for comprehensive wealth management to help them grow and preserve their wealth. In addition to investment management and retirement planning, other common areas of planning for HNW clients include: Tax planning: Depending on the tax-related credentials of your firm, HNW clients stand to benefit from tax planning and advice specific to their investments, compensation, charitable contributions, and estate. HNW clients may look to you to ensure that their wealth is taxed as efficiently as possible. Your firm will likely coordinate with a HNW client’s tax attorney or CPA® to plan their tax strategy. Estate and succession planning: Many HNW clients require comprehensive estate and succession planning to ensure multi-generational wealth preservation and a smooth transition to their beneficiaries. This may involve creating trusts, drafting wills, and planning for business succession, often in coordination with other legal and tax professionals. Executive compensation: It’s common for the compensation packages of HNW executives to include elements like stock options and deferred compensation. As their advisor, you can guide them in navigating and optimizing their compensation packages. Liquidity and cash management: HNW clients may need guidance on cash management strategies to ensure they have access to liquidity when needed, while also optimizing the return on their cash and investment holdings. This can be increasingly important when large amounts of wealth are in illiquid assets or as interest rates change. Alternative investments: As a client’s wealth grows, they may be interested in diversifying their investments. These investments may include private equity, hedge funds, real estate or farmland, commodities, cryptocurrencies, art, and other collectibles. Managing the wealth of HNW clients is complex. In order to serve these individuals and families, it is essential to find a balance between having the right credentials and providing a satisfying experience for your clients. How do financial advisors attract HNW clients? To attract HNW clients, your firm will need to develop a strong personal brand that highlights both your expertise and the tailored level of service you can provide affluent consumers. Below are the ingredients for building an effective marketing strategy. Acquiring the right credentials: HNW clients expect their financial advisors to have a strong educational background and professional certifications that attest to their expertise. Credentials like CIMA®, RMA®, CFA®, CFP®, ChFC®, CWPA®, and CPA® are highly regarded in the industry. Branding that resonates with HNW clients: Your firm's branding, including your name, website, and logo, should reflect the elevated level of service that HNW clients expect. A sophisticated and professional brand image can impact a potential client's first impression. Pricing strategy focused on value: When pricing your services, emphasize the value you provide rather than competing on price. HNW clients can be less sensitive to fees and more concerned with the quality of your advice, the personalized service you provide, and the financial value you create. Structuring your fees to reflect the comprehensive and customized solutions you offer can justify your pricing and appeal to clients looking for more complex, long-term wealth management partners. Specializing in a niche: Focusing on a specific niche within the HNW market, such as tech entrepreneurs, executives, or clients from particular industries, can set you apart from competitors. Specialization allows you to focus your services and expertise on your target niche's unique needs and challenges. This specialization may also help foster referrals within an industry. Building personal connections: When engaging with any potential client, regardless of their net worth, take the time to ask detailed questions and genuinely listen to their answers. Use the discovery meeting to show that you care and are committed to building trust over the long term. Remember, developing strong client relationships can lead to organic referrals within the HNW community. Position your firm for success by making sure potential clients feel confident in your strong brand presence and your ability to provide high quality service. Simple tips for maintaining HNW client relationships Once you start working with HNW clients, maintaining relationships and meeting their needs is the name of the game. Proactive and responsive communication: HNW clients expect a high level of attentiveness and personalized service. Whether it's a market downturn, a sudden change in their personal life, or a question about their portfolio, proactive and timely communication can make all the difference. Demonstrate your value: HNW clients want to know that you are keeping pace and staying ahead in evolving markets. Regularly update clients on regulatory changes, innovative strategies, and market trends that are relevant to your clients. Leverage technology: Use technology to offer your clients a portal with real-time access to financial information, personalized financial planning tools, and secure communication platforms. Being a tech-forward advisor can help cement your value with those who favor a digital-first client experience, this may include the younger generations in HNW households. HNW clients have similar expectations as any advisory client, but there is more on the line when managing these relationships. Much of it comes down to establishing protocols and communicating your value so your clients know you’re dedicated to their success.