Building a practice with HNW clients

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Vincent O’Neill (Stanford Brown) and Michael Karagianis (JANA Investment Advisers) discuss how advice firms successfully attract and support HNW clients, while individualising the advice service offering for them.

With $1.4 trillion sitting across an estimated 284,000 high-net-worth (HNW) individuals and Family Offices (according to Rainmaker Information), the HNW sector represents the largest pool of financial assets in Australia outside of the industry super fund sector.

Not surprisingly, this amount of investible money represents a considerable opportunity for advisers who target the HNW market, including a potentially higher advice revenue opportunity per client, compared to traditional retail clients.

“Much of the HNW client segment is non-advised,” says Michael Karagianis - Senior Consultant at JANA Investment Advisers. “But for any advisers looking to target this end of the market, there are a number of key considerations they first need be aware of.”

Speaking at the 2022 IMAP Advice in Action Conference, Michael outlined six particular needs of HNW/Family Office clients. These were:

• HNW clients often required multiple types of investment structures, like SMSFs, Family Trusts, corporate entities, and private ancillary funds (PAFs);
• HNW clients require more intensive servicing and consolidated reporting;
• They want access to investment solutions (less liquid solutions) that are not available to retail clients;
• They may have similar compliance requirements to retail clients, even though HNW clients are often treated as wholesale investors;
• While there is a definite role for managed accounts, retail SMAs are probably only part of the investment solution for HNW clients; and
• Advisers are more likely to need assistance in building their value proposition and service offering when targeting the HNW market.

At Stanford Brown, about 70 per cent of its clients would qualify as wholesale-only clients but they only treat a small proportion as wholesale only.  Vincent O’Neill - Director of Private Wealth at Stanford Brown - refers to the majority of these clients as being a hybrid between both retail and wholesale.

HNW clients at Stanford Brown can expect to pay a fee of approximately $18,000 to $20,000 per annum. The fee not only takes into account the number of people working for the client, but also includes a range of other services, like the number of meetings the client will have, as well as reporting. This fee is charged as a monthly retainer, which is reviewed annually.

“We have found that clients who generally pay the highest fees, also have the highest satisfaction rating with the business,” says Vincent. “That’s because they value the service we provide them, and are willing to pay for that service.

“That’s probably what drove us to focus more on the HNW segment of the market. When you service HNW clients, your standard offering needs to be more adaptable to what they want.

Some clients want incredibly detailed reporting, while others don’t seek that at all. It’s all about delivering those services to clients that they specifically want and value as part of the overall advice process.”

For advice businesses looking to target the HNW client market, Vincent believes it is essential that the right infrastructure is built within the firm to support the adviser.

“Getting the infrastructure right can be challenging,” says Vincent. “It might be infrastructure that allows you to deliver services and advice from a compliance and reporting perspective. You also have to be pro-active with the client services side of advice, like having staff with the right skillset to communicate effectively with clients. This might all sound obvious, but it does require a lot of work to make the process smooth for both advisers and clients.”

Vincent acknowledges that technology is an important part in enabling this systemised approach to advice. Stanford Brown has also introduced a ‘client portal’, which allows clients to digitally sign and share documents, as well as keep a closer eye on their investments.

“This is something our clients wanted, so we had to adapt our approach and service offering to ensure we were able to provide this client portal,” he says. “If you’re unable to satisfy the expectations of your clients - within reason - then you will lose them.

 “Clients have evolved as a result of COVID. While some clients still want to meet in person for their reviews, increasingly, clients are opting for more regular but shorter catch-ups. We’re now doing a lot of these catch-ups online via video conferencing platforms like Zoom.”

He concedes that for advice firms looking to target the HNW market there will be costs involved with implementing the right infrastructure within the business. However, Vincent also adds that the necessary infrastructure, such as technology, can be introduced incrementally, thereby reducing any hit to a business’s bottom line.

When it comes to intergenerational wealth transfer, Michael says 90 per cent of these potentially new clients are lost to advisers as a result of this transfer. Vincent agrees this is a significant risk to all advice businesses.

Stanford Brown’s approach to intergenerational wealth transfer starts early with the children of clients. This includes running specific education events for clients’ children, with topics ranging from superannuation and property investing, to health and insurance. 

“From there, we expand these sessions to one-on-one for our clients’ children if required. And for some clients with Family Offices, we create sub-funds for their children, where a small amount is invested but the children have control of the money. They get to directly experience what it’s like to invest, including the highs and lows of markets.

“We also engage in events for our clients that specifically deal with intergenerational wealth transfer, which is a conversation that is rapidly increasing amongst our clients. They are particularly concerned about the rising costs of property and want to ensure they can help their children get onto the property ladder.”

Stanford Brown’s managed accounts program first started in late 2017. It currently operates on Netwealth, BT Panorama and Macquarie Wrap.

“From the outset, our view has been that managed accounts are definitely not right for all clients,” says Vincent. “We subscribe to a core-satellite approach. The managed account is typically going to be a more liquid portfolio, and we complement this approach by using assets that might be either specific to the client, like legacy assets, or investment opportunities that crop up, such as unlisted property and private equity.” 

The key to investing with HNW clients, says Vincent, is to properly understand their appetite for risk and investing.

“Any advice is tailored to a client’s individual circumstances, but due to the complexity of their assets, more focus needs to be placed on the advice and investment needs of these clients.”

And what about ESG? Is this an area of investing that HNW clients are concerned about?

“Absolutely,” says Vincent. “HNW clients tend to have stronger views of ESG than retail clients. No two client opinions are ever the same with ESG. And while there are a range of ESG issues that are shared across all clients, like climate change, the ESG tail is long. This means there is a great deal of portfolio tailoring to get the right mix of ESG investments for what the client wants.”

He adds that ESG is increasingly becoming a mainstream discussion with Stanford Brown’s clients, which means advisers do spend more time educating clients about this style of investing

Vincent O’Neill is Director of Private Wealth at Stanford Brown, and

Michael Karagianis is Senior Consultant at JANA Investment Advisers.

They spoke on a session titled - ‘Building a practice with HNW clients’ - at the 2022 IMAP Advice in Action Conference.