Most middle-class retirees would doubt that high-net-worth clients have the same income worries as they do, but some of the issues are startlingly similar. On Oct. 11, the second day of the Think Retirement Income conference in Boston, Investment Advisor Editor-in-Chief John Sullivan moderated a fast RIA roundtable discussion with three Boston-area wealth advisors about meeting HNW clients’ retirement challenges.
Clients fall into two camps when it comes to retirement, said Barbara Attardo, partner at Daintree Advisors. Either the client is in good financial shape, or the income projections don’t work because the client’s spending is out of whack with their asset base.
“Some are headed for a train wreck,” Attardo said. “This summer I had my first zero projection.”
That’s when the conversation can become difficult. The best approach, she advised, is to “tell them what they need to know, not what they want to hear.” Many Baby Boomers are so caught up in their busy lives that they spend without thinking. It’s not just a matter of getting these clients to cut expenses and add to their nest egg; the challenge is to get them to rethink what they’re up to.
“Our business is helping clients get their financial life in balance,” Attardo said. “We try to give them a bigger perspective, to ‘see the forest’ with questions like ‘What does retirement look like for you? What are your goals? What are your action items?’ If the first base model is dismal, I’ll say, ‘You tell me what your priorities are.’” She avoids using words like “spending” or “budgeting,” and instead, “I talk about lifestyle.”
Tim Meckel, managing principal and chief compliance officer at TFC Financial Management, tagged “managing client expectations” as his top challenge. After years of earning often high income, clients often find it hard to transition to taking cash from a nest egg. Advisors need to explain the need to maintain purchasing power, and to discourage clients from taking big withdrawals just because the market is up. “We need to plug away on educate, educate, educate,” he said, making sure clients understand the purpose of each component of their portfolio.
One current challenge is educating clients on the role of alternative investments, said Charles “Chuck” Bean III, founder, president, and director of wealth management at Heritage Financial Services. When clients react “viscerally” to the unfamiliar recommendation, Bean’s response is to agree that stocks and bonds have done a fine job over the past 45 years. He then continues, “But adding more cylinders to the engine can give you a smoother ride,” and explains how alts’ low correlation can dampen volatility and enhance returns.
“The expectation level goes up exponentially” with HNW clients, Bean said. “Prospects with $10 million are very sophisticated,” and initial conversations aren’t limited to the firm’s performance. He explained, “They drill down to your value proposition compared to competitors,” who they see not just as other RIAs but wirehouses with deep benches. “They want to know, ‘What’s your skill set?’ ‘Where do you think you can add value?’” In responding, Bean said, “we focus probably two-thirds on personal wealth management and one-third on investment management. It’s a high-touch, collaborative approach.”
He added, “We used to have a longer leash” to choose and manage investments. Now clients are “watching MSNBC, they’re very much ‘in the moment.’” Clients who used to care only about equities are now beginning to ask about Treasuries. “We need to expand our toolkit, and be able to explain how we add value.”
Meckel pointed out that as an advisor “swims upstream” in search of higher net worth, clients expect a “more comprehensive, collaborative approach.” TFC’s client team typically coordinates with the client’s banker, accountant, estate attorney and other advisors. “CPAs have been very appreciative that we’re proactive in reaching out to them, and it’s paid off in referrals,” he said.
Attardo seconded the point that RIAs must be prepared to handle more complexity to attract HNW clients. “We focus on what we do in addition to investments,” she said, explaining that in working with the client’s other advisors, “we’re often the quarterback. We take a horizontal approach when everyone else is vertical. Probably nobody knows better than we do what both the left hand and the right hand are doing.”
“You don’t want to lead with investment outperformance because that’s fleeting,” Meckel agreed. Besides, a good wealth advisor does much more than manage a portfolio. “We’ve thought about changing TFC’s name to ‘The Financial Counselors’ because so much of what we do is counseling,” he observed. TFC even hired an executive assistant with a Ph.D. in psychology to coach advisors on how to ask open-ended questions.
“Don’t Be Shy” on Fees
“There are two kinds of client service,” Meckel pointed out. “There’s reactive service, where you answer all the phone calls before the weekend; and iterative or proactive service. Part of our proactive service is helping clients think about retirement before it occurs,” so they don’t fall off what he called a “fiscal cliff” on the day they retire. “We want to stay in touch and provide feedback all along the path to retirement.”
At Heritage, Bean noted, each client gets to know the four people on their team, who have three to four contact points with them throughout the year. An expert may serve on more than one team, depending on the client’s needs, goals and complexity. He also tries to match personalities and switch people if needed. When the chemistry is good, clients become “very sticky.”
At Daintree, Attardo said, “Clients know we’re accessible at any time. And with their team, they have multiple points of contact. We put all our client contact information online so any team member can access it.”
Addressing a question from the audience about long-term care insurance, Bean said, “Our client balance sheet includes long-term care, disability, life insurance and other types of risk protection. We try to have a pretty detailed conversation about long-term care with all our clients over 50. We feel it’s part of our fiduciary duty.”
Attardo concurred: “We put long-term care insurance on the table with all our clients who are 50 or older. We educate them on what it is or isn’t and what it costs.” If it’s not available because of health issues, clients are counseled on alternatives such as self-insuring. Using tools like LTCI and equity lines of credit, “we’ve become much more creative as a profession in how people are going to get through retirement,” she said.
She added that when Daintree assists with eldercare needs—helping a client with early-onset Alzheimer’s to obtain needed care, for example—it can provide an opportunity to interact with the client’s children, which helps in retaining assets when the parent passes.
Meckel encouraged advisors to charge for the additional value they provide. TFC’s management fee covers all planning services, but the firm also offers add-on services for an incremental fee. “Don’t be shy about billing for extra services,” he urged.
What Makes HNW Clients ‘Sticky’?
“We care,” Attardo said. “Isn’t that why we do what we do? Our clients are intelligent, sophisticated people who become friends, who trust us. We’re responsive. We do what we say we’re going to do. We sit on the same side of the table. I think our clients heave a sigh of relief when they realize they have someone to represent them, care for them and make sure they get what they need.”
“We help people sleep better at night,” concluded Meckel. “All those things that keep them up at night have been offloaded on their advisor.”