(international investment) -- As competition for the wealthiest client segment intensifies, only those firms that effectively cater to the unique service expectations of HNW and UHNW clients will be able to capture market share.
Managing the wealth of HNW clients - those with greater than $5m in investable assets - is understandably appealing to advisory practices; however, many firms lack the resources or capabilities to serve the high end of the market effectively.
"Firms must evaluate their core competencies and assess whether they have the necessary capabilities and resources before attempting to move upmarket," noted Asher Cheses, research analyst at Cerulli.
"To move up the advice spectrum, advisors must move beyond portfolio management and truly reconsider how they add value to better reflect their unique skills and expertise across a wider range of financial and nonfinancial needs."
Given their source of wealth, HNW investors are typically more confident in their ability to manage their wealth, which can be an important dynamic when developing a trusting relationship with HNW clients."
As HNW client needs become increasingly complex, advisors must also adopt more tailored product offerings and sophisticated investment processes to align with client demands. According to Cerulli's 2018 HNW study, wealth preservation, tax minimization, and wealth transfer are the most important investment objectives among HNW clients. "Advisers must recognize that there are certain products and strategies that are more pertinent to HNW investors, and ensure that they can provide access to more sophisticated and tax-efficient solutions to meet their needs," said Cheses.
Collaborative investment approach
Source of wealth is also an important factor in terms of service preferences among HNW investors. Managing the dynamic between closely held/family businesses and financial assets can be a critical factor in serving HNW investors. "Given their source of wealth, HNW investors are typically more confident in their ability to manage their wealth, which can be an important dynamic when developing a trusting relationship with HNW clients," explains Cheses. Advisers catering to this market should aim to adopt more of a collaborative investment approach, in which clients are given a sense of control and input in regard to managing their portfolios.
Focusing on the wealthiest households requires advisory firms to think differently about their clients given the wide range of behaviors and preferences at the high end of the wealth spectrum. As advisers look to move upmarket, the need to deliver a differentiated client experience based on each client's unique needs and expectations becomes paramount.
Advisers catering to the HNW market must make a concerted effort to understand their clients' entire financial and personal situation, unique goals and preferences, and tailor their services to these specific needs. While competition for the HNW and UHNW market is on the rise, with the right approach and service offering, advisory firms can successfully penetrate this market.
The findings are available in the 2Q2019 issue of The Cerulli Edge—US Advisor Edition, which details strategies for targeting and servicing HNW investors, enhancing advisor productivity, and building effective financial planning platforms for independent broker/dealers.