If your goal is to serve the high net-worth market, you need to know what wealthy individuals want. And that’s not such an easy thing to determine.

Toronto-based Taddingstone Consulting Group Inc. surveys affluent Canadians every year. According to Taddingstone consultant Keith Sjögren: “Millionaires want integrity, reliability in terms of quality of advice, expertise and contact.” High net-worth people want to be dealt with “intelligently,” he adds.

Cheryl Bauer Hyde, a financial planner with Assante Capital Management Inc. in Regina, says that high net-worth clients are looking for a trusting relationship.

Tim Burt, president and chief investment officer of Cardinal Capital Management Inc. in Winnipeg, puts it another way. “The most important issue among affluent clients is how comfortable they feel about doing business with the financial professional,” he says.

But, most advisors would admit, that’s true of any client, regardless of wealth. No client wants an advisor who can’t be trusted, makes them uncomfortable, is unreliable or is lacking in integrity and expertise.

So what really distinguishes the wants of high net-worth clients from those of clients with average assets?

Expertise is near the top of the list, according to our experts. Advisors to high net-worth clients need the expertise to deal with complex financial issues. They also need at their fingertips a wide choice of products and strategies, so they can tailor their solutions to meet their clients’ sophisticated needs. Clients of average wealth may be happy with mass-market solutions, but not the affluent.

They want choice — access to a variety of investment products. “They want solutions tailored to them, not to the advisor,” Sjögren says.

Furthermore, he says: “They have complex problems. They don’t want to be the advisor’s biggest client. They want the advisor to specialize in high net-worth.”

Burt, an investment counsellor and portfolio manager who specializes in clients with more than $500,000 in investible assets, agrees. The client must know that the advice is specifically tailored to his or her needs, he says: “The recommendation the advisor makes to the client has to make sense to the client. The client has to feel comfortable with it because if the client doesn’t, he or she will probably not stay with that advisor long or be open to making changes.”

Bauer Hyde, who also specializes in clients with investible assets of more than $500,000, prefers to define the wants of affluent clients by stating what they don’t want. “They’re not looking for someone who is necessarily going to take their world and shake it up,” she says. Instead, they are looking for a kind of continuation of service, usually with improvement in certain areas, such as estate planning, that may need more attention.

Defining the needs of those high net-worth clients is only the beginning. Meeting the needs of this lucrative market is something else. It has some very specific implications about how you run your practice.

Level of service

Communication between rich clients and their financial professionals is a “critical success factor,” according to Sjögren.
Taddingstone’s research indicates that one-third of Canadian millionaires want more frequent contact with their advisors, and there is a direct link between frequency of contact and client satisfaction.

It’s not that clients want to be contacted every day, Sjögren adds, but they want to have a clear understanding of when they should expect to hear from their advisors, particularly when the news is negative.

“Some people need more hand-holding than others,” says Burt.

It depends on the client and his or her degree of sophistication and to what extent they get nervous when the markets become volatile. “If you have a ‘one standard size fits all’ model, it’s probably not going to be successful,” he says. “Some clients need more frequent attention; others do not need it and, in fact, probably don’t even want it.”

The key is to know the difference.In Burt’s practice, the usual frequency is a meeting once a year, with some clients requiring phone calls more frequently and some requiring semi-annual meetings. Newer clients usually need more frequent meetings than those who have been with the firm for three years or more.

Bauer Hyde has a process that establishes up front what her clients can expect in the way of contact from her. “We begin the engagement by analysing their current investments, doing a financial plan, a financial review and looking at what parts of it need to be implemented,” she says. “We get a good, solid plan in place and then set up regularly scheduled meetings — most no more frequently than quarterly, and sometimes we have hard time getting them in for quarterly meetings.”

Clients expect to hear from her in between scheduled meetings only if there is something that needs to be addressed immediately. This way, if the client doesn’t hear from the advisor for three months, he or she doesn’t feel neglected.

But when the client calls, it is a different story: the response must be prompt. “Their expectations as far as responsiveness and quality are high. They demand that of themselves, and they demand that of the people who work with them,” she says.

According to the Taddingstone survey, 70% of Canada’s millionaires list full-service brokerages among their financial services providers, but 20% of those say they are dissatisfied with the service they receive from these firms. Sjögren says this dissatisfaction is the result of firms not listening to their clients. He points out that he himself is a client of a full-service brokerage, but has never been surveyed. Although a few brokerage firms do survey their clients, the fact that many do not reveals a weakness: the firms claim to be “client-driven,” but they have no mechanism in place to enable them to hear what their clients are saying.

The high net-worth advisor, therefore, needs not only a crackerjack contact-management system and support staff geared toward offering a high level of service to clients but also a disciplined way of soliciting client feedback.

Range of financial services

Most high net-worth clients are looking for someone to handle a broad sweep of financial services, including financial planning, investment advice, insurance, estate planning, tax planning and, in some cases, retirement planning and life planning. And most high net-worth clients want to receive their financial solutions through a single portal, the “one-stop shopping” model.

“They are looking for someone to integrate all of the issues and develop a full-source solution to all their needs,” says Jeffrey Pike, managing director and advisor at Toronto-based SEI Investments Canada Ltd., an investment-management company that offers fee-based managed accounts for high net-worth individuals.

Although no advisor can expect to be an expert in all financial areas, Pike says, the advisor can become an expert in co-ordinating the solutions. For example, he describes a scenario in which the advisor picks up a shoebox full of tax slips from the high net-worth client household and delivers it to the accountant and works with the accountant on the preparation of the client’s tax return. The same advisor may work with insurance or estate planners in a similar fashion. “It’s not that the advisor has to be the expert in all those fields,” Pike says. “The advisor has to solve the problem and get expertise and deliver it to the high net-worth household.”

Although research, including the Taddingstone survey, indicates that high net-worth clients are looking for integrated solutions, many are not receiving them. Many high net-worth clients are still getting what Kurt Rosentreter, a Toronto advisor with Berkshire Securities Inc., refers to as “silo advice.” In this scenario, the client’s individual financial needs are taken care of by separate professionals — an accountant who does only taxes, an investment advisor who looks after only investments, an insurance agent — with no one co-ordinating these services. “That is the case with so many people, and it’s a fragmented approach to finances. I try to promote the integration,” says Rosentreter, who specializes in high net-worth clients.

Julie Littlechild, whose firm, Advisor Impact Inc. of Toronto, does research on financial advisors and conducts client surveys for advisors, agrees that clients are looking for an integrated approach. “When we do client surveys, there’s clearly a demand for broad-based service,” she says. “So just in order to be competitive, advisors need to be offering a broad range of services.”

The specialists who provide these services could be within the advisor’s firm or they could be outsourced, she says. Outsourcing can present a challenge for advisors, who have to ensure that the professionals with whom they are entrusting their valued clients are going to deliver a high level of service. And they have to trust that the specialist won’t try to poach their clients.

As an investment counsellor, Cardinal Capital’s Burt is a specialist who receives clients both directly and as referrals from financial planners. Those clients who come to him directly and need other advice can be referred to planners within his firm. Bauer Hyde, on the other hand, herself a planner, often meets with clients’ other advisors, such as accountants and lawyers, when developing and maintaining the clients’ overall financial plans.

Either way, having a financial plan appears to inspire loyalty among affluent Canadians. The Taddingstone study found that only half of the millionaires it surveyed have a financial plan, although three-quarters believe a financial plan is important. “Affluent individuals who have formal plans are more satisfied with their advisors than those who have no plan,” the survey report says.

Advisors serving the high net-worth market, therefore, should be part of a team, either formally or informally, so they can meet the full spectrum of their clients’ needs.

Investment products

The most common type of investment among wealthy Canadians is individual securities, usually stocks and bonds. Whether the securities are owned individually or managed by a third-party money manager, wealthy investors lean more toward segregated accounts than they do to funds and pools, says Rosentreter. “So if you’re a financial advisor who can offer only mutual funds because you’re under the Mutual Fund Dealers Association, you’re limiting yourself,” he says.

That’s one reason why millionaires tend to use the services of investment counsellors such as Burt who hold the chartered financial analyst designation, which qualifies them to manage institutional accounts as well as individual portfolios. Still, financial planners can refer clients to an investment counsellor as part of their network of outsourced professionals.

Clients at the lower end of the high net-worth category — those with $500,000-$2 million — are often satisfied with managed-money programs such as pooled funds and wrap programs. Most of Bauer Hyde’s clients — who are mostly business owners and physicians — fall into that asset range. They see the advantages of the asset-allocation approach and appreciate the simplicity of the reporting system. Also, they are reassured by the process of assessing risk tolerance that goes along with these programs.

Vive la différence

But Rosentreter warns against segmenting high net-worth clients based solely on asset levels. There are different types of high net-worth clients, and their levels of sophistication, risk tolerance and market knowledge are determined by factors other than the size of their accounts. For example, he points to the difference between “old money” (people with inherited wealth that has been in a family for generations) vs “new money” (those who may be the first in their families to become wealthy).

People in the first category generally have experience with professional money management in Canada, Rosentreter says, and would insist that their money be managed by a professional on a segregated basis. Those in the second group may have achieved sudden wealth by selling a business or winning a lottery, for example. Up until then, they may have been invested in mutual funds. For these people, a wrap program is probably the next step in what Rosentreter calls their “financial evolution.”

Age is not a big factor here. “The financial evolution is not necessarily age-specific; it’s more circumstances-specific,” Rosentreter says. “You could be newly wealthy and be 70 years old.” Or a client could be born wealthy and be quite market-savvy by age 30.

There are many other characteristics that will affect affluent clients’ preferences and behaviour. For example, “old money” is less fee-sensitive than “new money,” Rosentreter says. That’s because people with old wealth are more accustomed to the high net-worth process and are used to paying for professional management and advice.

Business owners tend to be fee-sensitive, possibly because their success lies in minimizing costs. They expect good service, because they give good service. They usually have gatekeepers, such as a CFO and an accountant, whom they include in the decision-making process. They are more focused on security than return, often because they believe they take enough risks in their businesses.

Although wealthy clients come in all ages and personalities, it’s safe to say they share one trait, says Rosentreter: “They don’t want to gamble and they don’t need to see that they can earn 15%. They want moderate growth and protection of capital.”

In other words, wealthy clients want to remain wealthy. IE

Art and Thoroughbreds: Alternative Investments

The most popular alternative investment among Canada’s wealthy is real estate, according to a 2003 survey by Taddingstone Consulting Group Inc.

Thirty per cent of Canada’s millionaires hold investment property. And they are more likely to rely on their own advice or that of an accountant than on the advice of financial professionals regarding their real estate investments, the report says.

Cheryl Bauer Hyde, a financial planner with Assante Capital Management Inc. in Regina, says she keeps up to date on the real estate market in her area and offers limited advice when clients express an interest.

Sometimes she recommends a pooled fund that includes a real estate investment trust in its holdings. If the client wants more detailed advice, she finds an expert who can help.

But what can advisors do when wealthy clients are interested in more exotic investments, such as antiques, art and racehorses?

Bauer Hyde has cultivated relationships with local art dealers and galleries that can offer advice on issues such as art valuation and acquisition.

“I don’t think anybody is expecting the advisor to become an expert in yearling sales and antique carpets,” says Keith Sjögren, a consultant at Taddingstone. “But if you know you have a client who owns a stud farm, you’d be wise to ensure that you know people in that business, or can refer him or her to people who can help.”