Building a sustainable HNW client offering

By Jayson Forrest

James Trude (Clime) and Michael Karagianis (JANA) take a look at the intricacies of building a sustainable HNW client offering, and explore the opportunity for advice practices from a growth in intergenerational wealth transfer.

IMAP Specialist Webinar Series Serving HNW June 2023

Rainmaker defines HNW as any client with over $5 million of investible assets, with the size of the HNW family office market in Australia at about $1.4 trillion, making this segment of the market the second largest pool of money behind superannuation.

And with an estimated $2.5 trillion expected to be transferred to the next generation by 2050 (with approximately 70 per cent of this amount being HNW assets), there is a massive opportunity for advisers to build a sustainable HNW client offering over the next two decades.

While intergenerational engagement would seem the obvious answer for building a sustainable HNW client offering, it also comes with a number of challenges, says James Trude — Chief Client Officer at Clime Investment Management. These challenges include the accelerating cost of living pressures, which is seeing intergenerational wealth transfer happening much faster than previously. He says an increasing number of parents are providing their adult children with their inheritances much earlier to help pay down their mortgage.

“With early intergenerational wealth transfer, the challenge now is how to engage with the next generation,” says James. “Statistics show that once the inheritance is received, only 6 per cent of these children stay with their parents’ existing adviser, while 47 per cent of the kids decide to manage the inheritance themselves.”

Speaking at the IMAP Advice in Action 2023 Conference about building sustainable HNW client offerings, James believes there are five key factors for securing and maintaining HNW assets:

  1. Building trust across the generations, including the client’s children and grandchildren.

  2. Having the expertise to manage the client relationship, including being able to tap into an external professional network, like tax experts, to assist the client.

  3. Working with clients to help clarify their values, mission, goals and objectives.

  4. Helping a client to achieve their objectives through education, philanthropy, or via broader goals that go beyond investments.

  5. Revisiting the client’s values, by encouraging clients to come together with their families to consider their values and see if there have been any changes to them, which often happens when families grow and split.

“By broadening this engagement as far as possible, it helps to facilitate and augment client sustainability across the generations,” says James.

Alex Ventelon - Morgan Stanley
James Trude - Clime Investment
Kyle Lidbury, CFA - Perpetual Private
Michael Karagianis - JANA

With early intergenerational wealth transfer, the challenge now is how to engage with the next generation. Statistics show that once the inheritance is received, only 6 per cent of these children stay with their parents’ existing adviser, while 47 per cent of the kids decide to manage the inheritance themselves

James Trude

Something different

When building a sustainable HNW offer, James says it’s important to clearly distinguish the differences between HNW and retail clients. For example, HNW clients are more likely to want greater customisation and personalisation of services, as well as have more willingness to take on illiquidity, have an appetite for multi-generational planning, and require the integration of investing and multi-generational goals.

“At Clime, we build a sustainable HNW offering by providing our clients with strategic advice that is aligned to the family’s mission and goals,” says James. “We also leverage flexible structures, like IMAs, for bespoke investment outcomes, while providing a mix of both internal and external ‘best-in-class’ products.”

He adds: “It’s important to remember that many HNW clients come from a retail mindset. Advisers need to take the time to understand their clients, including their life and family goals, and not just their investment goals. You need to avoid making assumptions about your clients, which means understanding their problems first before jumping to solutions.”

Michael Karagianis — Senior Consultant at JANA Investment Advisers — agrees that managed accounts can be very useful for HNW clients, but rather than using SMAs, he suggests advisers might prefer to consider MDAs or IMAs.

“We work with advice businesses that use SMAs as a core but put satellites around that. That’s because HNW clients do not want investment solutions that any retail client can access,” he says. “They want solutions that are different from retail offerings. They want access to private equity, venture capital, direct infrastructure, and direct property. They want advisers to either provide these opportunities, or at least provide gateway access to those who can provide it.”

According to Michael, accessing the likes of private equity, venture capital, and direct infrastructure, will generally provide superior investment outcomes for clients, compared to either not being able to invest in private markets or going through a listed entity, which provides an extra layer of costs.

At Clime, we build a sustainable HNW offering by providing our clients with strategic advice that is aligned to the family’s mission and goals. We also leverage flexible structures, like IMAs, for bespoke investment outcomes, while providing a mix of both internal and external ‘best-in-class’ products

James Trude

Know your client segments

In order to pursue HNW clients, Michael believes advisers need to have a very clear definition of which part of the market they are targeting. That’s because each segment of the HNW market has different requirements.

As an example, he cites a client with $5 million, who may have less complex needs and be closer to being categorised as a retail client. But at the other end of the HNW spectrum, advisers might be dealing with a client who has well over $50 million, with much greater complexity.

“Not only understand which segment of the market you’re after but also understand what your capabilities are for that segment,” says Michael. “If you feel that you don’t have the full capability to properly service that segment, then work with other professionals and specialists who can help you.”

Michael adds that HNW clients are also very different to each other, making it essential for advisers to understand the background of the client’s money — whether that money has been made through a lottery win, inherited, or self-made through the client’s business. The way in which the client has made their money can determine their approach to how they take advice and invest their money.

“Advisers working in this space have to accept they probably won’t be advising on the totality of the client’s funds,” he says. “There are going to be assets that the client will be self-directed on, like property, so they’ll ask you to advise around that. Advisers also need to accept there will most likely be other financial advisers working with the client.”

Fundamental to working with HNW clients is not to underestimate the complexity and cost of servicing this client segment. These clients expect a platinum service offering, including frequent access to the adviser, invitations to special events, and access to an advice firm’s intellectual property, like research and insights. This requires advice businesses to undertake a cost-benefit analysis in order to price their service offering appropriately to meet the higher service expectations of HNW clients.  

Not only understand which segment of the market you’re after but also understand what your capabilities are for that segment. If you feel that you don’t have the full capability to properly service that segment, then work with other professionals and specialists who can help you

Michael Karagianis

However, whilst looking after the complex needs of HNW clients can be highly demanding, it is also a segment of the market that is under-advised and growing. These clients provide plenty of opportunities for advice businesses ready to take on intergenerational wealth and the next generation of clients.

Michael Karagianis

The right balance

The key, says James, to building a sustainable business for HNW clients is getting the balance right between efficiency and customisation of the service offering.

“Technology and platform capabilities are constantly improving, enabling advisers to create a high quality solution for wealthy individuals,” he says. “And managed accounts certainly provide advice firms with greater efficiency and the ability to scale their business.”

Michael believes the development of wholesale managed accounts is the next evolutionary step for this segment of the market, where advisers will be able to put together a managed account comprised largely of wholesale products.

But in terms of sustainability, he believes it is essential that advisers need to work out what their value proposition is, how they are going to differentiate their offering, and how they are going to source HNW clients.

“The HNW market is very relationship driven. Developing relationships to get in front of HNW clients can be time-consuming,” says Michael. “This might include joining boards and working with not-for-profits to get referrals.

“However, whilst looking after the complex needs of HNW clients can be highly demanding, it is also a segment of the market that is under-advised and growing. These clients provide plenty of opportunities for advice businesses ready to take on intergenerational wealth and the next generation of clients.”

About

James Trude is Chief Client Officer at Clime Investment Management, and

Michael Karagianis is Senior Consultant at JANA Investment Advisers.

The session ‘What does a sustainable HNW client offer look like?’, was moderated by IMAP Chair — Toby Potter.

 

 

 

 

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