Spotlighting and serving an overlooked segment: The very high net worth

How can registered investment advisors effectively serve this group of clients?

I’m thrilled to announce the return of the Duran Duran column, and I’m equally excited to lead the charge in the evolution of the industry at our newest venture, Rise Growth Partners. As ever, I continue to be energized by the RIA industry’s relentless drive toward providing increasingly sophisticated client experiences.

Still, amid all this progress, I believe there’s a significant oversight in the RIA sector’s engagement with a pivotal, yet frequently underestimated, segment: very-high-net-worth individuals, who fall between the high-net-worth and ultra-high-net-worth categories. Why is this important? Consider that a $10 million client paying 50 basis points annually often receives the identical treatment as a $2 million client paying 80 basis points. That often means the larger client is paying $50,000 per year for the same service as the smaller client, even though they’re paying almost three times as much per year in fees.

Let’s discuss three key takeaways on how RIAs can effectively serve and augment the VHNW segment:

Acknowledge their characteristics: Understand the unique traits of VHNW clients: They display considerable loyalty when their needs are met, navigate tight schedules, and expect personalized services.

Adjust the approach to advice: Position your firm as a specialist that understands this segment. Transition from a primary focus on asset growth to emphasizing both protection and growth, recognizing the shift in priorities as clients enter the VHNW segment.

Offer personalized solutions: Design an exclusive suite of services that highlight asset protection, financial simplification, and privileged access.

AN IMPORTANT DISTINCTION

After completing extensive analysis of dozens of midmarket RIAs – those with $1 billion to $10 billion in assets – we have noticed that most firms still loosely categorize their clients into three groups: mass affluent (clients below $500,000), HNW ($1 million to $25 million), and UHNW or family office (greater than $25 million). This ignores the fact that in between HNW and UHNW, there’s a massive and growing segment that has unique needs quite different from the tiers above and below: the very high net worth, with assets ranging from $10 million up to $25 million.

Just as firms like Goldman Sachs and JP Morgan have become lighthouse brands for the UHNW, so too can the independent RIA shine with the VHNW segment, which today is the primary target of full-service banks like Morgan Stanley and Merrill Lynch. To compete, independent RIAs must acknowledge there are critical distinctions between HNW and VHNW clients and strategically position themselves to serve this specific demographic.

WHAT DO THE VHNW WANT?

The fundamental concern for many HNW clients is ensuring they don’t outlive their money. That means they care as much about growing their portfolio and generating income as avoiding any catastrophic mistakes or portfolio losses (a “grow-and-protect” strategy.) As such, these individuals may need help balancing trade-offs. However, when servicing the VHNW segment, it’s important to keep in mind three key priorities that can be more elevated for families with higher net worths:

Protection: Once someone reaches $10 million, their focus shifts from concerns about outliving their assets to ensuring they are safeguarding their wealth. Protection becomes paramount for the VHNW, with legacy (estate planning) and insurance services gaining significance. These clients seek advisors capable of providing advice to them, their spouses, and their families in financial management – ensuring continuity and peace of mind.

Simplification: Clients in this segment have more complex lives, potentially including second homes, investment properties, and certainly more complex tax returns. RIAs serving them should aim to streamline and become the hub for their entire financial lives. For instance, VHNW clients may prefer annual in-depth financial reviews over quarterly ones. However, they still require frequent reporting, potentially in the form of a comprehensive heat map covering essential areas like taxes, legacy planning, and asset protection. The advisor should serve as a concierge and facilitator, ensuring ease and overseeing the client’s entire financial ecosystem.

Privileged access: Clients with $10 million in assets know how to discern between tailored and off-the-shelf services. Therefore, RIAs must give these VHNW clients access to exclusive services unavailable in the HNW segment, such as specialized investment strategies, private equity access, and personalized indexing with expertly managed tax overlays. It’s essential to provide customized services, including philanthropic support, that not only cater to the specific needs of these clients but also reflect the higher fees they incur.

Clients select advisors who have experience working with and providing services to clients just like them. If the independent firm doesn’t explicitly tailor their services to each segment, they are at risk of losing those clients to firms that do. By carefully defining a comprehensive set of services tailored to the specific needs and values of the VHNW clientele, independent RIAs can gain a competitive edge. Moreover, they can forge enduring relationships with these exceptionally loyal clients, securing their trust and allegiance for years to come.

Joe Duran is executive managing partner at Rise Growth Partners, the ultimate growth partner for exceptional advisory firms.