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Many of you read my article about the “70 deep model,” which explained the paradigm for a practice serving 70 or fewer clients with deep, high-touch service that commands a higher price. The most common response I got from advisors was, “How do I develop relationships with 70 ultra-high net worth clients?”
The first step is to find out what they value.
The 70 deep model
If you were in front of someone with a net worth of $50 million, what would you say to him or her?
Eeeeeeeh….dunno.
I posted this article listing the highest paid CEOs in San Diego to my membership group and dared everyone to try to get a meeting with them over LinkedIn. The response I got back was, “But Sara, I wouldn’t know the first thing to say!” Other responses I got were, “But with this level of assets, they’re probably already being served by a trust company. There are bigger and better teams than mine that are already probably in place.”
As a mom of four kids, I’ve gained a keen insight into human behavior. It’s almost an instinct. As soon as we learn to talk, it’s clear that we humans are born with the tendency to justify whatever we do, right or wrong.
“But he hit me first.”
See what I mean?
What’s the alternative – constantly being in ACAT mode trying to run a practice of 100+ clients like a hamster on a wheel? Which model serves clients better? So stop making excuses and live up to it!
I hate to break this to you, but you may have to put in some extra effort. Look at me here. I run a business at the same time as I raise four kids under six years old. It is brutal, bloody murder on a daily basis. And you can’t get on Google and learn some new tax skills? I know, I know you just had rotator cuff surgery (or however the excuse goes).
Forget about the $600k IRA rollover and put your attention to solving bigger issues for your clients! This will take some good old-fashioned determination but you will survive. Remember the even though down comes the rain and washes the spider out, he/she still keeps climbing up the spout again.
1. Be able to solve hard financial planning problems
From a high-end estate attorney I know, “Advisors don't educate themselves. There are so many planning opportunities, but many do the same old tired plans from years ago which doesn't best serve the client.”
Oh, but my strength is managing the money, you say. I hear advisors say this all day long. Yet their track records aren’t GIPS verified or even audited. Or they don’t even have an official one. This is such an empty claim. The ultra-wealthy are the most discerning and this will not fly with them.
Think about how much more value you can add by helping your clients solve complex financial planning problems such as these:
Estate and tax planning
You’re not an estate attorney or a CPA. You’re more strategic than that. Your role isn’t drafting the trust document or calculating the fair market value of the unitrust.
Your goal is to help your clients use their CPA and attorney resources better to arrive at the best decisions regarding their taxes and estate.
Examples:
- How do you reconcile the needs of the income versus the remainder beneficiary (who is more concerned with principal preservation) in a trust so that everyone is happy?
- There are five type of charitable trusts. How do you know which one is right given what the client’s payout requirements are?
- Becoming an enrolled agent and offering to give the ultra-high net worth a second opinion on the last three years’ tax returns
Stock option laws that apply to corporate executives
Let’s say you were introduced by a friend to Jamie Dimon at a cocktail party, and he asked you for a second opinion on his finances. Would you be ready for that? Would you know the ins and outs of the laws that apply to high earning corporate executives?
Examples:
- Who is an “officer” vs. an “executive officer” under Section 16? What differences does this make for the client?
- What is the ideal mix of stock options, restricted stock, and performance shares within an executive compensation package?
- How do you negotiate your contract with a new company? How do you make sure you can’t get more at another company?
- What should an executive offer letter say? What should it not say?
- How do you make sure you and your family aren’t a terrorist or cybertheft target when your life is so public?
Planning for business owners
Because business owners tend to make good money, most financial advisors throw them on the list of clients they work with on the “about us” section of the website without much thought behind it. They are preyed upon by advisors who neglect to do any meaningful planning as their focus is getting paid for selling a life insurance or key-person insurance.
Examples:
- Offer to review their business plan and compare your cash flow projection to theirs.
- Given family dynamics and the legacy you want to preserve, (how) should you use the marketability, minority, and key person IRS discounts to reduce estate taxes when handing down your business?
2. Be an expert in family dynamics
I was reading a wonderful Barron’s article about an advisor for the ultra-wealthy. He recounts several situations in which he had to play the role of “family counselor” and resolve deep, multi-generational problems.
Here’s an excerpt:
One example is a highly successful first-generation wealth creator family based in Florida. There are three young adult daughters and a slightly older son. All of the daughters were approaching marriage age but had very different lifestyles, very different friend networks, and very different values around thrift and savings versus spending.
It’s almost impossible to be unemotional when it comes to your family. Ultra-wealthy people desperately need the help of a third-party, objective voice to help with interfamily matters like these.
Examples:
- Look at the wonderful points in this blog from the Financial Transitionist Institute about the Bezos divorce: Wealth doesn’t equal financial wellbeing, how does the wife protect her kids in the case that Jeff remarries, etc.
- When do you tell your kids that they’re millionaires?
- How do you talk to your friends about money when you’re pretty sure they don’t have as much as you do – what are the risks of letting an outsider know this?
3. Be able to justify your fee in clear and tangible ways
When I work with some advisors, I have them answer a questionnaire. This one stumps everyone:
What is the most expensive problem you have ever solved for a client? Name the dollar amount and how you saved them this money or created this money for them.
I can recall maybe two times that an advisor has responded with a tangible dollar amount.
Oh, my practice doesn’t work like that, I hear. Most of the value we deliver is intangible. Then how can you expect them to perceive what you do as valuable? If it’s hard for you to articulate then it’s hard for them to articulate.
You are talking about getting paid tens or hundreds of thousands of dollars in fees. Nobody is going to pay you this because they like your handholding and they get a warm feeling when you call. You have to make them money, more money than you cost.
Do you ever wonder why people stay with these brokers who are earning exorbitant fees for high-priced investment products? And even once this is brought to their attention they stay. It’s because the client feels there is value despite the fee.
Sara’s upshot
In an age of fee compression, do the opposite of what the rest of the world is doing – raise your fees so they are ridiculously overpriced – and then ridiculously over-deliver! Running a more value-added practice is something I discuss in my membership. Please comment on APViewpoint with any questions I should address in future articles.
Sara Grillo, CFA, is a marketing consultant who helps investment management, financial planning, and RIA firms fight the tendency to scatter meaningless clichés on their prospects and bore them as a result. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.