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.
Attracting HNW Clients
“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.