It's hardly news that regular communication--financial and otherwise--is the key to high-net-worth client satisfaction. Nor is it any surprise that satisfaction leads to loyal clients. However, loyalty in this rarefied upper strata was always thought to be a relative term. Until recently, it has been common knowledge that the most affluent investors tend to spread their wealth around.
Now along comes targeted new research that satisfaction breeds contentment--that clients who are satisfied with the service they receive from their wealth manager will vote with their assets.
"Although accepted wisdom suggests that high-net-worth clients are more apt to spread their money around with different advisors, they actually tend to put a higher share with one advisor, which means that establishing your role as the 'primary advisor' is critical," says Julie Littlechild, president of New York-based Advisor Impact, a firm that specializes in helping financial advisors and accountants improve profitability and productivity.
According to Economics of Loyalty, a recently released survey conducted in January 2008 by Advisor Impact with Vanguard Financial Advisory Services, frequent communication can mean the difference between clients who are simply content with the service they receive and those who are completely satisfied. The research gives statistical reinforcement to the experience of successful wealth managers who communicate regularly with their clients--whether to reassure them in difficult markets, to educate them on matters of finance or simply to show interest in their lives.
According to the study's findings, 46 percent of high-net-worth clients put 75 percent or more of their total investable assets with a single wealth manager they consider their primary advisor. "Some [wealth managers] have done a very good job of positioning themselves as the primary advisor, and linking that to the demand for advisors who play a coordinating role across other professionals suggests that they will increase satisfaction by doing so," says Littlechild.
Her research resonates with those wealth managers who already communicate fluently with their high-net-worth clients and have reaped the rewards. When Bob Selbach celebrated his 65th wedding anniversary recently, Dan Polizzotti was among the numerous well wishers--taking Selbach, his nephew and a buddy golfing to celebrate, and sending flowers to his wife Natalie. But Polizzotti is neither a family member nor a longtime friend. He is the couple's wealth manager of the last three and a half years--a role that has helped him to become familiar with virtually every element of their lives.
"The way to develop loyal clients is through contact that is non-financial in nature," says Polizzotti, of Roseland, N.J.-based Acorn Financial Services and a senior advisor with Signator Investors, Inc. "And if you're going to be talking to these people about non-financial things, you have to know what's going on in their lives, which entails knowing about their family matters." In fact, Polizzotti says he tries to communicate with his high-net-worth clients about non-financial issues roughly 24 times a year.
Not Taught at Home
Like Polizzotti, most wealth managers believe that continual communication is the most important ingredient in customer satisfaction among high-net-worth clients. And as estate planning and taxation issues become increasingly complicated--particularly in turbulent and uncertain market environments--investors are looking for continuous affirmation that their financial life is being actively managed. Most advisors say they try to communicate with clients one- to two-times a month.
"We are spending a lot of time with our clients, reminding them that they need to maintain a rational view and screen out a lot of the noise that's being communicated by the media," says Timothy Speiss, the partner in charge of the personal wealth advisory practice at accounting and advisory firm Eisner LLP in New York City. He points to recent headlines that compared the rise of the current U.S. unemployment rate of 5 percent with the nation's last major recession. "It's true that unemployment is up," admits Speiss, but he argues that wealth managers who are "good at keeping their clients rational would have explained that unemployment only went from 4.8 percent to 5.1 percent, and that in recent years, it has been as high as 8 percent." Clients left on their own without any communication or guidance are likely to worry about how economic trends will impact them and wonder how well their wealth managers are serving them, he points out.
To avoid such worries and ensure that clients do not overreact to sensational headlines, savvy wealth managers are not only stepping up in-person meetings, but many are also holding educational events highlighting a myriad of issues that concern the HNW.
"A growing number of the wealthy in America haven't come from wealth, so it's not as if their parents taught them how to manage it," says Joseph Sheehan, CEO and a principal of Moneta Group, a St. Louis wealth management firm. "We spend a lot of time with our clients, talking about everything from the estate tax issues of their plans to the impact of wealth transfer and how they should handle it--which includes conversations with their children," says Sheehan. "We view ourselves as a family's chief financial officer."
The Key to Referrals? Ask
To help educate clients about issues as varied as estate planning and how to involve children in the process; dealing with elderly parents in need of professional care; or investing in alternative assets, Moneta frequently holds breakfast gatherings featuring specialists--from psychologists to tax attorneys--for 10 to 20 of the firm's high-net-worth clients and their friends. Since clients often have friends in similar stages of life who are facing many of the same issues, such events have helped the firm generate new business. Despite all the advice columns, the Economics of Loyalty study revealed that many wealth managers are loath to ask clients for referrals. In fact, 72 percent of respondents to the Advisor Impact study said they have never been asked for a referral! Moneta's solution was to develop an advisory board focused on soliciting feedback from the firm's clients about its service and asking for referrals.
"Our research clearly shows that when advisors lay a solid foundation by delivering what clients expect, and then leverage that commitment by helping their clients spot good referral opportunities, they will succeed in generating more referrals," says Littlechild. "This trend, however, is in no way linked to assets--meaning high-net-worth-clients are as good a target as any for referrals."
More and more, HNW clients expect their wealth manager to be a jack-of-all-trades--either by offering a family-office approach to serving clients by creating teams of employees dedicated to each client, or by partnering with specialists to bolster their services with areas of expertise they lack in-house. "Success is based on individualization and listening to each client--being by their side and being a trusted advisor," says Charles Lowenhaupt, founder of St. Louis-based Lowenhaupt Global Advisors. The trusted wealth manager, argues Lowenhaupt, "thinks about much more than just the wealth and assets under management. He or she thinks about the life a person wants to lead, including issues such as how to raise children with wealth, how they engage in the community, philanthropy, and how they look at legacy."
Robert Rowe, a senior vice president of Raymond James & Associates' Rowe Consulting Group in Chicago, has created a network of specialists that includes accountants, attorneys and financial planners to fill the gaps in his own expertise. Though some wealth managers still try to handle everything themselves, he says clients appreciate managers who acknowledge their own limitations and create working relationships with other specialists whose assistance can help them provide better services.
"I don't think you can be all things to all people and do it well--certainly not in the high-net-worth world," says Rowe. "With all the trusts that are out there, how can one person know everything? The higher the net worth, the greater the sophistication required," adds David Kleinhandler, chairman of New York-based David Kleinhandler LLC, which specializes in estate planning, life insurance, and life settlements. "People want to know that you bring a discipline to the table and that you're going to stay focused on that discipline," he says.
Satisfying high-net-worth individuals also means providing them with options. Most wealth managers who refer outside specialists say they give clients two to three names. To that end--because the relationships managers have with their clients have become much more encompassing than they were in the past--those clients increasingly want to know that there is a back-up plan for managing their finances should anything happen to their primary wealth manager. Sixty-one percent of the high-net-worth clients in Advisor Impact's study reported that their primary advisor coordinates with their other advisors (see "Playing Quarterback," sidebar on page 33).
"This clientele is looking for a network--not just an individual," says Peter Miralles, president of Atlanta Wealth Consultants in Atlanta. "They want to know there's a group of people behind their advisor, and they want to get to know that group from the beginning," he says. Clients at his firm are introduced to everyone involved with their portfolios from the get-go, with regular meetings throughout the year.
Miralles not only keeps in regular contact with his clients and outside specialists involved with their finances, he encourages all parties involved with an individual's estate to gather at least once a year for a big-picture view of how everything comes together. These meetings have led to many instances where he has been able to identify issues and potential issues he and his colleagues should be addressing, enabling him to ensure that nothing important is overlooked. "We don't want a lack of communication to turn into one of the reasons their plan fails," says Miralles.
Getting clients to really open up about their finances as well as the significant issues in their lives can be a lengthy process, but it is one that is essential to creating an all-encompassing wealth management plan. Once clients develop a rapport with their wealth managers, most are unlikely to leave without significant coaxing and, perhaps, the promise of far superior service from a competitor. The Economics of Loyalty study found that 82 percent of respondents have never thought of leaving their wealth managers, and of those that have, only 3 percent have taken serious steps towards doing so.
"Once clients find and commit to an advisor, they go through a cathartic process, getting financially naked, and once they open up to you they don't really want to expose themselves to others," says Kenneth Kamen, president of Princeton, N.J.-based Mercadien Asset Management. Kamen says the high-net-worth used to mostly seek help with money management, but given today's longer life expectancies, "these days, they're also looking for how to manage longevity risk," he says. "No matter how much money people have, most live to that lifestyle, and they worry about that money diminishing."
For many clients, longevity risk is only half the story. If they qualify for the sandwich generation, many clients find themselves simultaneously planning for the needs of their children's educations and long-term care for ailing parents. Because the intricacies of such issues range from taxation to uniquely structured trusts, wealth managers need to continuously update their own knowledge base and devote an ever-increasing amount of time to managing clients' portfolios.
"It's almost impossible to do a really good job for a large number of high-net-worth families," says John Nersesian, managing director of wealth management services for Nuveen Investments in Chicago--a $170 billion asset manager. "If this is the space in which you want to work, you've got to make a commitment to really devote your time, your energy and the resources of your team and firm to providing the high level of service this particular marketplace has become accustomed to."
As high-net-worth investors become more sophisticated, many wealth managers are taking a page from institutional investors like Harvard University, seeking to more actively diversify clients' portfolios. That diversity may mean broadening clients' holdings beyond U.S. stocks and bonds to include international equities and the use of alternative investments to provide extra alpha and hedging.
"There has been a sea change when it comes to the number of people investing in alternative investments, and it's an area where we're focusing," says Allison Shipley, a principal in the private company services practice of 'big four' accounting firm PricewaterhouseCoopers. "Many times clients don't realize how significantly their personal tax situation will be impacted by making an investment in hedge funds--to the point where we're now seeing a backlash from some clients who are saying they now want out of these funds," Shipley says. Despite that, she stresses that it's a tribute to wealth managers "who are helping clients understand risk a little better so that most of our high-net-worth clients now invest in some sort of alternative investment." Adds Nuveen's Nersesian: "Today's high-net-worth family looks so much like an institution that we've dubbed them 'instividuals.'"
Women as Clients
Another noticeable shift among high-net- worth investors is the rise in the number of HNW women. Jane Williams, CEO of Palo Alto, Calif.-based Sand Hill Advisors, says more men are handing over the financial reins to their wives. Combined with those experiencing major life transitions such as divorce or sizeable inheritances, women have become a major target for wealth managers seeking new clients.
"Women are very honest and transparent about their fears, and they fear being taken advantage of--making it difficult for them to grant trust to advisors in light of all the abominations that have occurred on Wall Street over the last few years," says Williams, adding that Sand Hill has been touting transparency in its efforts to attract women. "But women are also more likely to tell you that they don't know how to evaluate performance, so we are able to have a nice dialogue about those kinds of issues." she says.
The greater complexity of client portfolios has created the need to educate clients across the board about issues such as risk management and complications like delayed tax returns that can result from more sophisticated investment vehicles. But for many wealth managers, educating investors means the need to first broaden their own investment knowledge and capabilities. With competition for high-net-worth clients on the rise, many managers have begun advancing their education to differentiate themselves--a trend Nersesian expects to continue. He points to the chartered private wealth advisor program launched by the Investment Management Consultants Association in Chicago last March. Designed specifically for advisors who serve high-net-worth families with at least $5 million in assets, IMCA says the course is already sold out for the next year.
The ability to communicate such expertise to clients, along with an in-depth understanding of the priorities and circumstances unique to their lives, is crucial to creating a loyal client base. And it is a process Acorn Financial's Dan Polizzotti says begins the very second wealth managers take on a new client. "In order to really understand how clients' finances fit into the big picture and their ultimate goals, you have to get into their lives and learn about their vacations, the charities they're involved with, where their kids and grandchildren are going to school, and it just follows right down the line," he says. "It all sounds simple, but you have to ask the right questions to get them to open up."
Britt Erica Tunick is a writer who specializes in financial topics.