By Jayson Forrest
Do the needs of high-net-worth (HNW) clients really differ from retail investors, and is this cohort actually more profitable for an advice business? Drawing on their experience working with HNW clients, Andrew Tracy (JBWere) and Will Howard (Fitzpatricks Private Wealth) share some of their insights.
Managing about 80 high-net-worth (HNW) client relationships, Fitzpatricks Private Wealth knows a thing or two about dealing with complex client issues. As an advice business, Fitzpatricks prides itself on taking on the lead advisory role for its HNW clients, where it collaborates and works closely alongside other aligned professionals, like accountants and lawyers, on behalf of the client.
Speaking at an IMAP Specialist Webinar Series on ‘Serving the High-Net-Worth Client’, Will Howard — Senior Adviser at Fitzpatricks Private Wealth — says typical HNW clients are professionals who are time-poor. Their expectation is to have one lead adviser who can seamlessly run the various facets of their investments and financial arrangements.
“In terms of portfolios, the types of clients we look after want a solution that is quite transparent, sophisticated, and actively managed,” says Will. “Typically, HNW clients are financial delegators. They don’t want to hear from us every month about investment ideas or to talk about portfolio repositioning. They are time-poor and are willing to outsource their financial arrangements, but still require a high degree of transparency about what the investment team is doing and why, at various times throughout the cycle.”
Will says clients seek to engage Fitzpatricks to help them gain control of their finances, while assisting them to better understand the complexity of their arrangements, including intergenerational relationships within the family. He also adds that Fitzpatricks helps its HNW clients with business risk, as well as other asset protection risks across their balance sheets.
“We seek to genuinely understand our clients’ circumstances, and what’s important to them and their families. This enables us to more effectively collaborate with the other professionals they use, like accountants. This collaboration helps us to develop great strategies around asset protection and wealth structuring. It’s then about keeping our clients financially well organised.”
Andrew Tracy - JBWere
Will Howard - Fitzpatricks Private Wealth
The types of clients we look after want a solution that is quite transparent, sophisticated, and actively managed. Typically, HNW clients are financial delegators. They don’t want to hear from us every month about investment ideas or to talk about portfolio repositioning. They are time-poor and are willing to outsource their financial arrangements, but still require a high degree of transparency about what the investment team is doing and why
HNW client expectations
When it comes to the service expectations of HNW clients in the advice relationship, Andrew Tracy — Head of Discretionary, Markets and Managed Accounts at JBWere — believes it can vary widely. He says it largely depends on the individual risk profiles of clients, as well as their level of education and financial literacy.
“It really comes down to the adviser and client formulating a roadmap for advice. The clients we tend to see have a minimum of $20 million to invest. We also classify this type of client as ‘board-directed entities’ — like charities and foundations. Those board-directed entities quite often have very specific documented investment policy statements. They are very particular about what they want, and our advisers have a very strict framework in which to operated that relationship in,” says Andrew.
JBWere has about 150 HNW family groups/individuals it looks after, with each client having different needs when it comes to investment strategies and reporting, including their desire to explore ESG, responsible and ethical investing.
Will also acknowledges that conversations around ESG, responsible and ethical investing are increasingly becoming the norm with HNW clients. However, he says it’s with private foundation and not-for-profit clients that he is seeing most of the uptake with ESG investing, as both types of clients have very specific objectives and investing biases, which are not necessarily aligned to investment returns.
I suggest that between 40-60 per cent of clients on an adviser’s book should be looking at managed accounts. It’s a solution that will provide a better outcome for the client, as well as saving time for the adviser
Internal structure
According to Will, the internal structure within an advice practice to cater for HNW clients, is not dissimilar to a stock-standard retail client.
At Fitzpatricks, every HNW client is assigned a specific adviser. Will engages in face-to-face meetings with all of his HNW clients, while ensuring there is also an assistant adviser attending those meetings in a supporting role. This assistant adviser is responsible for doing much of the follow-up work from that meeting, including communicating with the client’s other aligned professionals on issues arising from the client meeting. Importantly, the assistant adviser also serves as a back-up to Will, enabling clients to contact this adviser when Will is unavailable.
Will is in regular communication with Fitzpatricks’ investment team (Atrium Investment Management), where it outsources investment selection to investment specialists. By doing so, Will is able to stay across the various asset classes and portfolio positioning.
It’s a slightly different approach at JBWere, where it has about 150 advice teams. Those teams can vary from one or two advisers, through to larger teams of seven or eight individuals.
“These teams comprise of experts in financial planning, and they might also include people with technical expertise in areas like direct equities and managed funds,” Andrew says. “The average adviser at JBWere has 22 years’ industry experience, and has been within the business for an average of 14 years,” he says. “So, there’s a high level of experience with our advisers.”
Our clients want to give Fitzpatricks the discretion to make the appropriate changes to their portfolios when it’s suitable to do so. A managed accounts solution is the ideal structure in which to do that
Client engagement
Client engagement is an essential element when working with HNW clients. That’s why the advice teams at JBWere are always available for their clients. However, Andrew concedes that the level of engagement and service required by not-for-profits tends to be at a higher level than other types of HNW clients.
“Whilst the level of service for a not-for-profit tends to be essentially be the same as a HNW client, it is done at a much more granular level. This is due to the investment policy statements and governance documents that boards and not-for-profits operate under,” he says.
Engagement for HNW clients at Fitzpatricks is a minimum of 3-4 times per year for clients with less complex needs. However, for more complex family office style clients, they are engaged with monthly.
“For these more complex clients, there are monthly issues we need to respond to. These include meetings with their family foundation, tax planning, and asset protection and acquisition meetings,” says Will. “There’s a whole raft of issues that happen throughout the year that advisers need to project manage.”
If you know your cost-to-serve and you know exactly how you got to where you are, then there’s no doubt that HNW clients — given their scale — are more profitable on a per client basis than a retail client. But that’s not to say that if you have the right solution at the retail end that clients won’t be profitable as part of a business offering
Managed accounts
Andrew believes managed accounts are suitable for every type of HNW client. He cites the significant benefits of using managed accounts, including the timeliness of implementation and execution of changes to portfolios, as well as transparency.
“Not every client wants a managed account. Some prefer to have day-to-day conversations with their broker. But I suggest that between 40-60 per cent of clients on an adviser’s book should be looking at managed accounts,” says Andrew. “It’s a solution that will provide a better outcome for the client, as well as saving time for the adviser.”
Will agrees: “Our clients want to give Fitzpatricks the discretion to make the appropriate changes to their portfolios when it’s suitable to do so. A managed accounts solution is the ideal structure in which to do that.”
He adds the most scaleable part of Fitzpatricks’ business are those clients with a mandate around investment management. That’s because when using an outsourced investment solution, like managed accounts, it becomes a lot more scaleable for the business
Advice remuneration
About seven years ago, Fitzpatricks moved all of its clients to a fixed annual fee model, with the fees reflecting the complexity of each client. As such, the Newcastle-based business in which Will works utilises a fixed salary model for its advisers, with additional bonuses attached to this structure.
In terms of client fees at JBWere, Andrew says they will typically negotiate an upfront fee with the client based on the size of the investment. That fee will incorporate the advice component, as well as transaction and platform costs.
Advisers within the Private Wealth Group at JBWere are paid a percentage of brokerage transactions and the level of revenue that is written. However, Andrew also confirms that JBWere does have other teams that are based on fixed salaries, with bonuses attached.
He adds: “If you know your cost-to-serve and you know exactly how you got to where you are, then there’s no doubt that HNW clients — given their scale — are more profitable on a per client basis than a retail client. But that’s not to say that if you have the right solution at the retail end that clients won’t be profitable as part of a business offering.”
About
Andrew Tracy is Head of Discretionary, Markets and Managed Accounts at JBWere; and
Will Howard is Senior Adviser of Fitzpatricks Private Wealth.
They spoke on ‘Serving the high-net-worth client’ at an IMAP Specialist Webinar Series.
This webinar was moderated by Toby Potter — IMAP Chair.