A structural reality defines professional services businesses in which the producing unit – the practitioner—has a certain number of hours each day for delivering services. Therefore, economic reasons direct wealth advisers to court high net worth (HNW) investors because, for a given hour of advice time, a client with higher assets under management is more profitable than one with fewer.
An investor with at least $1 million in investable wealth represents the AUM target prospect, and, so it is with most every other advisory firm. In competitive local markets, each top client is a firm’s important asset, but a juicy plum for a competitor to steal.
Prestige as a Competitive Mandate
Cachet. Exclusivity. Status. Prestige. These synonyms reflect aspirational qualities marketed to HNW individuals for a wide array of products and services. Wealthy clients know they’re in demand and most grow accustomed to the attention.
In the advisory market, firms compete with their own aspirational services in order to gain new clients and protect existing ones. It’s now a competitive mandate for advisers targeting the high AUM strata to have specialized services such as a “Prestige Package” separate from services provided to clients of lesser wealth.
Prestige within Core Requirements
While some private banks and multi-family offices lavish non-investment services—such as art appraisals, travel services and an on-demand concierge—the actual competitive turf has three core services: planning quality, investment returns and responsive communication.
A firm that fails to deliver one or more of these three services risks losing a client irrespective of fancy offices or convenience services.
Still, within these core services, top clients want to be treated special, and those firms that create prestige achieve differentiation. These competitive advancements raise service expectations for HNW clients, and this brings a three-pronged business challenge: 1) the ability to raise prices is crippled; 2) adding services increases costs; and 3) per-client profits decline.
Engineering Prestigious Services for Increased Profits
By way of illustration, let’s look at each of the core services and consider a high-end service that can be delivered profitably:
Core Service No. 1: Planning Quality
A large portion of an adviser’s top clients are (or soon will be) in the wealth distribution and transfer stage. This means that trust planning is a prime focus. Collaborating with one or more trust and estate attorneys makes advanced planning much more efficient than if the adviser operates independently. South Dakota and Alaska trust companies cater to wealthy families and have a wide array of packaged solutions easily accessed by advisers (and collaborating attorneys) in volume.
Core Service No. 2: Investment Returns
Tax alpha is a set of actions an adviser takes to produce higher after tax returns such as tax loss harvesting, asset location, income shifting and product selection. It is a high-value, high-demand service in the vein of “It’s not how much you earn, but what you keep.” See 2015 US Trust study titled “Insights on Wealth and Worth” and August 2015 “Russell Financial Professional Outlook”. Since the amount of tax alpha production is driven by the client’s bundled tax rate (i.e. federal and state), those clients with the highest incomes gain the most benefits.
Instead of the laborious and customized way tax alpha is currently delivered, adviser-focused variable universal life (registered and private placement versions) allows an adviser to produce a customized tax alpha portfolio that has true tax-free growth, income and cash access, all produced in a single step with low costs. (Note: the associated tax-free death benefit also has important planning applications for wealth protection and replacement.)
Core Service No. 3: Responsive Communication
Top clients expect personalized attention from their adviser given the fees that they pay. One-on-one meetings are important for relationship-building. However, for longstanding clients, periodic educational events with a group of like-minded clients offers many advantages: 1) the adviser’s time is used efficiently; 2) clients appreciate meeting others in similar circumstances; and 3) group discussion about an educational topic adds more robust dimensions.
A Profitable Mandate
An advisory firm receives substantial business benefits for each HNW investor gained, and pain when one is lost. Given top clients’ importance, allocating R&D time each month to expanding services in a scalable way is time well spent. For each advancement a firm makes in its HNW service package, it moves up the curve from a competitive mandate to market leadership.
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey