The “only universal truth” for the high-net-worth segment is that a one-size-fits-all approach is doomed to fail, according to a report from HUB24.
Part of its ‘Advice practice management series’, the report states HNW investors varied heavily in behaviour, motivation and sophistication and can’t be treated as a homogenous cohort.
In a case study about understanding different client segments, Lorica Partners HNW specialists Brendon Vade says relying on stereotypes about this group can be dangerous.
“The notion that they are all financially sophisticated is just plain wrong. So too is the assumption that they all want to be educated about detailed financial issues.”
The report noted a key reason the HNW segment is attractive for advisers is the larger capacity to pay fees, but Vade found the type of arrangement that best suits their circumstances will vary, from a flat fee retainer through to a percentage of assets or a mix of both.
HNW investors – defined as those with over $1 million in investible assets outside their home and non-SMSF super – was at 485,000 in September 2020, down only slightly from 490,000 in 2019 according to research from Investment Trends.
Importance of segmentation
The report states to price advice services appropriately, advisers need to clearly understand the client segment they’re targeting.
“Advice clients vary widely across many attributes, including their circumstances, financial objectives, engagement preferences and level of sophistication, which means a one-size-fits-all approach to pricing is unlikely to be the best option.”
Existing practices that understood client economics at a segmented level better understood how to balance between resources, fees and services.
“In fact, research into Australian advice practices has shown that those with an effective client segmentation model are, on average, 148 per cent more profitable than their non-segmenting peers.”
In search of the holy grail
Earlier this year, Partners Wealth Group managing director Mathew Cassidy told Professional Planner most businesses aren’t designed to target the HNW adviser space.
“You can’t [attempt] to deal with that high-net-worth client and not have a sophisticated offering – that takes a fair bit of investment and foresight to prepare your business for that,” he said.
Many small and medium sized businesses don’t have the resources and experience to target the space.
“There’s a small segment of the client base that just want pure investment advice but there’s a demand for more holistic needs and that’s the way we’ve tailored our business for that.”
