Servicing the rich is about providing more than just investment guidance. As Amanda White reports, planners must identify with their clients on both a professional and personal level.

More than 10 million individuals worldwide hold at least $US1 million ($1.14 million as at December 31, 2007) in financial assets and the competition to grab a piece of this lucrative pie is hotting up.

Total financial assets of high net worth individuals around the globe are expected to grow to $US59.1 trillion by 2012, up from $US40.7 trillion today. According to the recent Cap Gemini/Merrill Lynch World Wealth Report the trend for retail banks and insurance firms to invest in advisory services to access the burgeoning retirement segment, as well as link with those in younger generations who will be beneficiaries of intergenerational wealth transfer, is continuing around the world.

What this means from an industry point of view is the players that used to dominate this segment have had to look at how best to differentiate their own propositions for their high net worth and ultra-high net worth clients.

The growing pool of high net worth individuals globally is a growth market that represents enormous potential for all financial services players. How advisers are servicing their existing clients in this area, as well as their reaction to garnering more clients in this growth segment, could be the difference in how the market changes shape.

Whether established or new to this unique and desirable client base, what both providers have in common is a growing need, and opportunity, to create more customised infrastructure and service models to better target this segment. While often asset allocation and investment strategy are the focus of discussions around high net worth clients, equally important are the unique servicing requirements of these clients and the important role that plays in retention and growth.

The 2008 report, which covers 71 countries accounting for more than 98 per cent of global gross national income and 99 per cent of world stock market capitalisation, found that increasingly some firms are investing in “client experience” initiatives to bring a more personalised, family office-like service to high net worth delivery.

Or they are also introducing customisable client solutions to respond to the growing demands of clients that want improved visibility into embedded risk, holistic analysis of their assets and other benefits. These strategies complement retention, and offer the potential for organic growth, but only if firms can execute them effectively.

In Australia, where the number of high net worth individuals has grown 7 per cent – which is steady but pales compared to India (22 per cent), China (20 per cent) and Brazil (19 per cent) – there are a number of major issues facing advisers that service these types of clients. Thomas Alexy, market director and head of global wealth advisory for Merrill Lynch Australia, says tailored services are essential.

At the very basic level Merrill Lynch looks at segmenting its clients, which are predominantly high net worth individuals, as to whether they are accumulators or preservers of wealth. But more importantly, the report highlights that some firms have adopted more qualitative traits to define their high net worth individuals, such as demographics, investing behaviour, geographic scope and source of wealth, since clients can no longer be segmented simply by their level of wealth. This helps them to distinguish and better serve clients – even among those in the same wealth band.

For instance, comparing investing approaches and goals may reveal significant differences among a wealthy entrepreneur, a high net worth individual whose wealth is inherited, an affluent entertainer or sports figure and a Baby Boomer who has just cashed out a hefty retirement savings account.

By recognising such distinctions, firms can tailor their approach – and some are going so far as to deploy teams of specialists dedicated to micro-segments. What this comes down to is that servicing high net worths is dependent on strong adviser relationships.

“Everyone is on each other’s tails here,” Alexy says.

“If you don’t have the relationship you don’t have a business if you are client-centric.”

With Australia now housing more than 172,000 high net worth individuals, ranking it 10th in the report, Alexy believes the key is being part of the “to do” list they carry around in their back pocket.

“Whether these clients’ focus is looking at security for the next generation, health care or solving a problem in their grandson’s business, we want to become the go-to person for every decision they make. We might not be able to solve every problem but we want to be part of the decision-making process,” he says.

Ultimately the greatest success with this client segment, and probably universally, will be realised by those firms that comprehensively understand their clients. According to the World Wealth Report, high net worth clients are seeking advisers they can trust for comprehensive wealth management services, not only guidance on investments.

Clients expect advisers to understand them in the context of a larger relationship that encompasses personal and family finances as well as business partnerships or estate planning. Part of the key to establishing that is to have advisers that can identify with clients on a professional but also personal level. Because of the focus this market segment has on a “trusted” adviser, the challenge to match the right client with the right adviser is paramount.

At the moment, the average adviser in North America is 52 years old and, according to a recent paper by Helen Kearney and Lee Conrad called “The War for Talent” in On Wall Street , within five years, 42 per cent of advisers now practising will pass 60 years of age.

This sits quite well with the high net worth clients, who tend to favour older, and presumably more experienced, dedicated and talented, private banks and wealth managers, the report says.

“Age-related issues are important because it means you are having a real conversation; if you can personally identify with the problems because you are also facing them, then you have a relationship,” Alexy says.

“You need to have the right advisers to ask the right questions; we have some clients where we see multiple generations of the same family.”

While older generations, which hold most of the wealth, favour their aged contemporaries, advisory businesses also need to be cognisant of diversifying in those advisers they hire.

“Younger planners can attract new clients such as Generation Y, but they can also help to service the children and grandchildren of the high net worth matriarch or patriarch,” Alexy says.

“The secret remains that this is a relationship business.”

Importantly, these clients are also happy to pay for service and so the role of the adviser is more like a consultant.

“We want to [eliminate] that the reason [clients] are calling is because school fees are due or returns are down,” he says.

“Clients are more interested in their happiness now because markets are down. The key is to listen more intently, ask if their circumstances have changed. Have you taken too much risk? Are you sleeping at night? People usually can’t sleep at night because of either medical or financial reasons, and we want to know about both.”

In the Anglo world there are commonalities in the issues faced by high net worth individuals, especially compared to some Asian and Latin countries where they have to worry about safety, and issues like ransom, as well as holding assets in foreign currencies.

“We also try to work closely with their other providers to get a full picture, and realise we cannot do everything,” Alexy says.

Alexy believes an advisory firm with a global reach serves the high net worth clients well, because it can get deeper into their “to do” list. “[A] global reach allows families to keep connected,” he says.

“We share as a company so those clients that travel or move around can stay with us. This is still a people business, but at the same time we think the globe matters more than others might so our technology is linked globally on the same platform, with local regulation and product applicability that matters.”

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