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BNY Mellon's Pershing Study Finds Advisory Firms Need Fundamental Servicing and Infrastructure Changes to Successfully Serve HNW Clients

Many advisory firms with aspirations of serving high-net-worth (HNW) investors underestimate the breadth of business changes that are required to be successful, according to a new whitepaper released today by Pershing LLC, a BNY Mellon company. The report, What Wealth Wants: Refining Your Firm's Approach to the High-Net-Worth Market, discusses the business areas essential for change and the practices to achieve success with HNW clients, including service offerings, staffing, operations, and pricing.

"HNW clients represent a considerable portion of the advice market," said Katie Swain, director, financial solutions at Pershing. "Serving this segment successfully is not just a matter of identifying prospects and converting them. It requires a substantial evolution and transformation of a firm's approach to service and infrastructure to ensure that HNW clients can be profitably and sufficiently served over the long term."

HNW investors accounted for one-quarter of U.S. investable asset share in 2015 – or nearly $8 trillion.1  Market share of this wealth tier, which comprises households with investable assets in the $5 million- $25 million range, is expanding rapidly relative to the industry at large.

Traditionally, wirehouses and private banks have served the HNW market. However, more recently, independent advisory firms have been expanding their capabilities and winning a greater share of HNW business, due to their ability to provide individualized service and greater customization.

"HNW clients' expectations for customized solutions are driven by the complex and unique circumstances they experience in their lives," said Gabriel Garcia, director of relationship management at Pershing Advisor Solutions. "One of the commonly demanded services from HNW clients we see is for financing assistance. Their financing needs relate to a shortage of liquidity, not due to a lack of assets. They seek solutions for leveraging existing intangible assets in a way that minimizes interest costs and tax consequences, and advisors need to deliver these services in a seamless way."

Firms succeeding in meeting the needs of HNW clients receive lucrative rewards, according to research cited in the study. The average client size for a HNW advisor serving investors with more than $5 million in AUM is more than 30 times that of an advisor serving clients with less than $1 million in AUM.

In light of the ample and growing market HNW clients represent and the income potential in serving them, providers are varied and competition is intense. To help firms sustain HNW success, the paper discusses the following core business requirements:

  • Addition of New Services: Advisors may need to evolve their service offering to encompass new areas such as estate planning, investment consulting and philanthropy, while de-emphasizing services commonly offered to smaller clients, such as retirement planning, college savings and personal insurance.
  • Expanded Set of Financial Products and Solutions: Because HNW clients typically hold more illiquid assets, firms need to expand their guidance beyond financial planning to include collateralized lending and private banking, typically through a custodian with global reach.
  • Higher Service Standards: Clients in the HNW segment have complex needs and high expectations, with the quality of service—anticipation of needs, willingness to meet service requests, accessibility and flexibility—equal in importance to the services being provided.
  • Ability to Scale: For HNW advisors, greater scale typically offers many advantages, including greater in-house expertise, service continuity and better buying power, but smaller firms can also be successful by forming partnerships with a network of reliable providers, or narrowly defining their niche focus.
  • Staffing: Larger client relationships typically require more staff members per client and more specialized roles. In serving the HNW market, there is a clear advantage for a highly structured team-based approach headed by a lead advisor and including attorneys, accountants, investment analysts and other specialists.
  • Operations and Technology: Firms may need to invest more in CRM systems, communications platforms and investment monitoring solutions to manage complex investments, manage workflow and improve efficiency.
  • Pricing: Advisors may need to adjust pricing levels and structures as they expand their HNW business. In addition to an AUM-linked fee, many firms also layer in an advice retainer or event-driven fees to highlight the value of the additional services they are providing.