RIAs zero in on golden goose of client prospecting: entrepreneurs

Advisers who like risk-tolerant, type-A clients are a fit with entrepreneurs

Apr 13, 2017 @ 1:09 pm

By Jeff Benjamin

When it comes to client prospecting, entrepreneurs are emerging as among the most sought-after niches, which might have something to do with the fact most financial advisers are themselves entrepreneurs.

"Entrepreneurs may or may not be wealthier than other clients, but they are driven," said Peter Creedon, chief executive at Crystal Brook Advisors.

"I have found working with entrepreneurs or self-employed individuals is challenging, takes time and is very rewarding," he added. "As an entrepreneur myself, I can relate to the highs, the lows and everything else."

Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, described the entrepreneur client as a natural fit for a lot of advisers.

"What I hear from advisers who have transitioned to independence is entrepreneurial clients often encouraged them to start their own firm and join them as an entrepreneur," he said. "It creates a like-minded relationship and adds another dimension in the adviser-client bond."

Whether it is intentional or not, entrepreneurs represent a significant portion of RIA clients.

According to Cerulli Associates, a third of RIAs have indicated that business owners comprise 25% or more of total client assets.

Entrepreneurs represent the largest niche client segment, followed by physicians, which is the target of 18% of advisers.

Krzysztof Garlewicz, president of Prosperifi, said entrepreneurs make up almost 70% of his clients, while the rest are largely represented by family and employees of those entrepreneurs.

"There are some 5.7 million business owners in the U.S., who employ 90% of the country's workers," he said. "They leave an impact on all levels of the economy, they're the engine and backbone of who we are, and I believe a solid framework, empathy and broad resources are needed to serve this marketplace."

Mr. Garlewicz is so committed to the entrepreneur market he is launching a customized financial planning package designed specifically for business owners.

"One of the first things I learned about entrepreneurs is that only about 5% have a working knowledge of the value of their business, but for 95% of them the business is the largest part of their balance sheet," he said. "A lot of times our industry will only come calling when it looks like there's going to be a liquidity event."

While advisers like Mr. Garlewicz might be specifically targeting business owners, other advisers are just happy with a more random exposure to entrepreneur clients.

"Entrepreneurs are great clients as they are extremely busy in their own occupations and are great at delegating to others, such as their financial adviser, to handle other tasks," said Thomas Balcom, founder of 1650 Wealth Management.

"They are typically results-oriented and tend to focus more on performance than other items such as financial planning," he added. "Since they are busy individuals who do not have a lot of spare time, meetings with them are more focused on ensuring that they are on track to accomplish their financial goals."

Of course, what might sound to some like an ideal client niche, can also present its own set of unique challenges from a financial planning perspective.

"Years ago, I worked with several entrepreneurs who expected me to be their personal and business CFO," said Laura Mattia, senior vice president of financial planning at Cumberland Advisors, and personal financial planning program director at Muma College of Business, University of South Florida.

"They are willing to pay but they expected me to understand their business model, their financial statements, assist with cash flow and banking relationships, analyze profit sharing plans and retirement plans for employees and even help with business insurance," she added. "Entrepreneurs, by nature, tend to be type-A personalities with high expectations."

Ms. Mattia said one of the biggest challenges she found when working with entrepreneur clients related to their difficulty separating personal and business finances.

"To just deal with their personal life is insufficient and dissatisfying for them and not the best strategy," she said.

Another challenge, according to Ms. Mattia, is helping a generally risk-tolerant type of client embrace a more conservative investment strategy, when appropriate.

"There's a fair amount of risk involved in embarking on a new business, so you have to make sure the investments compliment what they're doing with their human capital," she said. "If you're working with a professor, the human capital is almost bond like, but when you're dealing with an entrepreneur the human capital is more like a commodity investment."

According to the Cerulli research, advisers don't need to specifically concentrate on entrepreneur clients, or any particular niche, but "they should be very clear about specific service offerings for business-owner clients and how they solve specific needs related to succession, tax management, retirement plans, asset protection, and other business-owner needs."


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