A larger percentage of the wealthy—defined as having a net worth of US $10 million or more— are feeling the financial pain of the bear market. From equities to cryptocurrencies, many of them have recently seen their portfolios shrink. One advisor pointed out that his clients were up about 20% last year and are down 20% this year, so they’re even. The only flaw in this logic is that very likely, the clients see themselves as down and are unhappy about it.
A bear market is one factor in the angst and concern many of the wealthy are feeling. There is white-hot inflation, extreme political uncertainty, devastating war in Ukraine, a climate crisis causing severe weather, Covid-19 has not gone away with the possibility of another pandemic down the road a little, and the list goes on. While the wealthy are better positioned to deal with these problems, they do adversely affect their lives and tend to keep some of them up at night.
The recent events are also speeding up a powerful trend impacting the private wealthy industry. According to Justin Breen, the driving force behind the exclusive BrEpic Network and co-author of Superior Results: Maximizing the Value of Your High-Performing Multi-Family Office, “The super-rich and their high-performing single-family offices are generally very astute consumers of financial and legal expertise. Those less affluent have been—albeit slowly—adopting the same approaches to getting greater value from more smartly selecting providers to better negotiating with them. The current environment is accelerating the less affluent to follow in the steps of the super-rich and their high-performing single-family offices.”
So, the question becomes: “At this time, how can advisors significantly grow their practices?” And, significantly growing means increasing revenues by 15% to 25% even as investment fees decline because of a decrease in the asset value of current clients.
Probably one of the best ways to grow an advisory practice today is to deliver exceptional investment results. That does not mean being less down than the indices. It means producing positive investment returns. While some advisors can do this, historically most have not. Even with exceptional investment performance, the advisors need to connect with the wealthy, many of whom are disinclined to make changes.
Advisors who have high-performing family office practices are likely much better positioned to excel during these turbulent times. “With a high-performing family office practice, advisors are problem solvers,” says PJ DiNuzzo, founder and president of DiNuzzo Middle-Market Family Office and author of The DiNuzzo “Middle-Market Family Office” Breakthrough: Creating Strategic Tax, Risk, Cash-Flow, and Lifestyle Options for Successful Privately-Held Business Owners and Affluent Families. “We find that being able to help wealthier clients effectively address their most pressing concerns has resulted in significantly more business. It’s certainly not all investment management business, but we deliver value cost-effectively and are fairly compensated. We’re also finding that since so many of the wealthy are poorly served there are enormous opportunities for us to make a substantial difference in their lives.”
High-performing family office practices are commonly superior in meaningful ways to investment and wealth management practices. The diverse needs and wants of the wealthy are usually better served. At the same time, the earning capabilities of a high-performing family office practice produce far greater than other types of practices.
While a high-performing family office practice might be inherently better than other types of practices, advisors still need to connect with the wealthy. Although there are numerous ways for advisors to meet prospective wealthy clients, the most powerful way is by getting high-quality referrals from other professionals.
According to Homer Smith, managing director of the Integrated Family Office, founder of Konvergent Wealth Partners, and co-author of Optimizing the Financial Lives of Clients: Harness the Power of an Accounting Firm’s Elite Wealth Management Practice, “Accountants and attorneys have wealthy clients that can greatly benefit from the expertise we can deliver. At the same time, when we work with other professionals we’re able to help them accelerate their success. Both of these elements are essential for growing our family office practice. By meaningfully increasing the earnings of accountants and attorneys, we see a steady stream of new wealthy clients for whom we can provide effective solutions.”
The bear market and all the other sources of anxiety can send some advisors into hiding. For those advisors who well understand the changing dynamics of the private wealth industry and can address multiple issues the wealthy are dealing with, these turbulent times can prove quite rewarding.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
