In 2023 there is a high probability of a recession. Among economists and analysts, there is a lot of debate as to the timing, length, and severity of a recession, but general agreement that there will be a recession.
A recession—especially a severe recession—can be very detrimental to advisory practices. For example, there are likely to be fewer wealthy clients and the markets can decline bringing down an advisory firm’s asset management fees.
On the other hand, a recession can prove, from a business development perspective, very advantageous to select advisory practices. In the best of times, many wealthy individuals and families are poorly served. A recession can act as a catalyst for the wealthy to realize they can get much more value than they’re currently receiving by working with highly capable advisory practices that are truly client-centered.
To meaningfully grow during a recession, the business model of the advisory firm has to be able to address the full range of objectives and concerns of the wealthy. “Critical to our success is our ability to address the needs and wants of wealthy clients,” says Vince Annable, CEO and Founder of VFO Advisory Group and co-author of Your High-Performing Virtual Family Office: Maximizing Your Financial and Personal Lives, “Through our virtual family office, we enable our wealthy and ultra-wealthy clients to achieve their financial and personal agendas. For example, the integration of tax mitigation and investment management is very valuable to our clients and it is not the norm in the private wealth industry. Adding value in ways most wealth managers cannot result in more wealthy clients for our family office practice. A recession is likely to only increase the number of wealthy people seeking out high-performing family office practices.”
Even in a severe recession, there are going to be many wealthy individuals and families that require guidance and customized services, and financial products. Aside from the viability of an advisor’s business model, advisors will need to be able to connect on a preferential basis with the wealthy. There are various ways for this to happen and the most efficacious way to connect on a preferential basis with the wealthy is through referrals from other professionals such as accountants and attorneys.
“Many accountants have a cohort of wealth clients that can majorly benefit from family office services,” says Homer Smith, Director of the DK Family Office Practice, 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, “Being able to deliver exceptional value to the accountant’s wealthy clients is our number one priority. Our second priority is helping accountants substantially grow their practices. This commonly leads to a steady stream of new wealthy clients for our family office practice. This is the case when times are good and even more so when times are difficult such as during a recession.”
When markets are booming, there is a tendency for the wealthy to be less critical of the results they are getting from their advisors. In contrast, when times are tougher such as during a recession, the wealthy will usually take a closer look at the results they are getting. Therefore, those advisors who can connect with the wealthy on a preferential basis and can deliver exceptional value will find enormous opportunities to grow their practices all the time including during a recession.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.
