Bowen, founder and CEO of CEG Worldwide, previously worked as a financial advisor and firm executive. He served successively as CEO of Reinhardt Werba Bowen Advisory Services and Assante Capital Management.

Moving Upmarket

In their quest to move upmarket and serve wealthier clients, more advisors are interested in pursuing the ultra-affluent-those investors and families with investable assets of at least $30 million. Should you join them?

At the end of 2008, there were approximately 774,000 ultra-affluent individuals worldwide, according to the 2009 World Wealth Report by CapGemini. Now, there's no doubt that those ultra-affluent families can generate a lot of income. Given the ever-increasing level of financial complexity that comes with immense wealth, there is now more demand than ever before for advisors who can ably serve the ultra-affluent. What's more, the bear market prompted some advisors to look for a client base that is largely impervious to big economic shifts and volatile market cycles, and they believe that the ultra-affluent fits the bill.

But if you're among those advisors, be warned: Working with this select group of clients can be extremely challenging in terms of both effective client service and intelligent business management. If you're trying to pursue this market, or you're just curious about it, it's helpful to examine its key characteristics and see how you must structure and run your practice to decide if it's a path you should consider.

Five Keys
There are five core characteristics that the ultra-affluent tend to have in common when understanding how they relate to and use their sizable wealth. These five characteristics provide the framework for how advisors need to approach and work with the ultra-affluent.

• Complexity is the first and most significant characteristic defining this group. Tremendous wealth brings complications for many parts of their financial and personal lives. Even before you consider working with them, you should first comprehend the kind of complexity you would need to manage. Consider that an ultra-affluent family will probably consist of a patriarch, a matriarch and perhaps their two adult children. The adult children may each have several children, some of them adults. With these three generations, and a fourth soon on the way, you'll be confronted with planning not just 10 to 20 years out, as you're accustomed to now, but 100 to 200 years out.

  Also consider the various entities that many ultra-affluent families control-professional corporations that support the family, limited liability companies, limited partnerships, various separate trusts and maybe even family foundations. You must understand each of these different entities from tax, compliance, planning, investment advisory, estate planning and gift perspectives. In addition, there's bill paying, accounting and expense management for each of these entities. Plus, various family members probably have different sets of personal, education funding, tax planning, charity and retirement goals that require detailed cash flow and investment management from a multigenerational wealth-transfer perspective.

  And don't forget emotional complexity. The patriarch and matriarch of the family might each have different types of relationships with each of their children. The siblings each have unique interpersonal relationships with one another, with their children and with the children of their siblings. All of these various emotions and relationships come into play when managing the finances and dealing with people both within and outside of the family.

  Great wealth raises the level of complexity in family and personal relationships, tending to magnify both eccentricities and animosities. Indeed, "Too Rich to Worry? Not in This Downturn," an article in the New York Times on Oct. 2, 2009, argued that the extremely wealthy have become particularly concerned about how the various people within their family units spend, save and invest the family money.

• Control. A major focus for many ultra-affluent investors is maintaining control over their money and every other significant situation in their lives. Because they see their professional advisors as the key to exerting this control, they typically have many advisors-ranging from an attorney and accountant to insurance professionals and investment advisors.


• Connections. Because contact with the right people is essential for success in both their personal and business lives, the ultra-affluent prize and protect their connections. In general, they have access to substantial numbers of influential people and have influence over those people.


• Capital. The ultra-affluent see capital not as money per se, but as the ability to deploy resources to make things happen-in other words, a means and not an end. For this reason, they are often more concerned with preserving their wealth (and thus their ability to accomplish big things) than they are with growing it.


• Charity. The tax incentives for philanthropic actions, plus the authentic charitable desire of many ultra-affluent Americans combine to make charitable gifting important in the lives of this group.

All In The Family Office
What the ultra-affluent most want and need are answers to their complicated challenges-real solutions backed by expertise and world-class service. They expect their advisors to be highly qualified to address their issues. So to succeed in this market, you must set up your practice to demonstrate high quality at every point of client contact-and you must do so profitably.

Broadly speaking, there is one business model currently in use by advisory firms that serves ultra-affluent individuals: the family office. This organization is dedicated to meeting the entire range of its clients' financial and personal needs. A family office typically has an in-house staff to provide its core services of investment management and administrative services (such as recordkeeping, aggregated statements and accounting). All other services are usually outsourced to external specialists.

Operating a family office can be highly profitable, but only if the business is managed in specific ways. For example, you must minimize overhead expenses. If you try to build a complete in-house team of experts, your costs will be difficult to recoup. Instead, outsource the majority of work to qualified experts.

Create an effective network of experts. Your ability to bring together and manage a group of outside professionals who will work together is critical to your success. Successful advisors in family offices understand that they can't do it all themselves. While they may manage key items in-house (such as cash flow and investments, and the structures and relationships of the various entities and trusts), they outsource expertise in most other areas to specialists. They make it their business to know the experts in every field related to the management of ultra-affluent family affairs.

To be successful using the family-office model, you must also use the classic consultative wealth management approach that I have written about repeatedly. This model offers numerous cross-selling opportunities-including insurance, credit services and investment banking-which translate directly into higher profits for the family office. In fact, research by CEG Worldwide principals has shown that family offices that offer multiple products and services are, on average, three times more profitable than the family offices that primarily offer investment management and a few supplemental services.

You also need to differentiate yourself from the many firms that really offer mostly similar investment services, but which are calling themselves family offices. A key way to do this is to provide value-added lifestyle services that complement wealth management and advanced planning, such as educational services, collection advisory, family security and concierge services.

That raises a final key point: Be prepared to invest a substantial amount of money in your business if you go the family-office route. Even when you minimize overhead as much as possible through outsourcing, you will still need to increase your overhead significantly above what is required to run a typical investment advisory business. It is not unusual for family offices just beginning to scale up to spend many millions of dollars on the technology required to deliver comprehensive financial reporting, for example.

Make no mistake: Pursuing the ultra-affluent investor niche requires a sizable commitment of resources in order to be successful. That fact, coupled with the complexity of serving this group, means that it is an ideal avenue for a relatively small percentage of advisors today. By exploring this opportunity with your eyes wide open, you'll be able to determine if it's the next stage in your evolution as an advisor.

Reprinted from: Financial Planning