How to hook a HNW client

Tax crackdown by HMRC will not deter advisers from focusing on high-net-worth segment

The high-net-worth space has suddenly become a little toxic. According to a National Audit Office report in November 2016, one-third of the UK’s HNWs are currently subject to an HMRC inquiry into their tax affairs. Worryingly for advisers, HMRC has floated proposals to sanction those who market schemes.

Will these moves make the HNW segment less attractive to financial advisers?

Leveraging existing HNW clients

HNW clients are prized by financial advisers the world over and the increased scrutiny is unlikely to change this. In fact, the desire to attract HNW individuals has never been stronger given their rising numbers and growing needs. In the light of the tax clampdown, advisers will consider how they provide services, but they are unlikely to withdraw services altogether.

Why are HNWs so prized? Well, not only do they have sizeable pools of money to manage, but they represent a marketing tool that enables advisers to gain access to other HNWs and further pools of money.

In addition, while HNW clients may materialise after the sale of a business or other windfall, further transactions often follow over the years. This puts the adviser in pole position to help the client manage subsequent transactions and the cashflows from them.

Show your competence

Some advisers have no HNW clients. Given the networking potential from leveraging a single such client, making considerable efforts to capture one seems a reasonable business proposition.

It pays to consider their real needs, rather than perceived needs. They may at some stage want access to exotic investments, but this is unlikely to be an immediate priority. In fact, any kind of investment pitch as an opening gambit is probably unwise: if all you do is manage a client’s money, your relationship with them is likely to ebb and flow with the markets.

In our opinion, a successful, longer-term wealth management relationship is underpinned by more fundamental needs. Many HNWs are juggling many financial and non-financial issues. Some are utterly unprepared for any potential hiccup in their lives. So the starting place is the will, insurance, strategic financial planning, tax, pension vehicles and, only after that, investment strategies.

If HNWs can clearly see they will feel more comfortable as a result, trust starts to develop.

How to provide a complete service

Of course, there is little point in offering to organise the lives of HNWs if you are not set up to fulfil the task.

Some advisers have created teams of professionals to help entrepreneur clients in particular. This may involve partnering with a business valuation specialist, a corporate financier, a private banker and lawyers.

The business valuation team allows the entrepreneur to value the business away from the scrutiny of the marketplace and fix any shortcomings to increase the value of the business before a sale. The corporate finance team assists potential buyers by providing financing and moving the deal along at the right speed. Overseeing the transaction are the lawyers who are familiar with the whole team. The proceeds of sale are managed by the adviser, possibly partnering with an asset manager such as Russell Investments, which can advise on short- and longer-term needs.

Unearthing prospects

Putting all this into practice requires identifying clients who require complete wealth management.

Sometimes, of course, a client channel will develop from an existing client or clients. When developing new channels, it makes sense to assess which industries are growing or have undergone strong growth.

The HNW is different from the mass affluent channel in that it is insufficient to be friendly and honest. While these qualities help, more important for HNWs is useful information delivered clearly, in a timely manner and allied to practical assistance.

Take dentistry, which has become a growth industry in the UK as middle class wealth has increased and as more people are unable to access NHS dentistry. Dentists are entrepreneurs and have business needs, including insurance, benefits and pension needs for staff, retirement planning, tax filing and succession planning.

Private dentists tend to wear a lot of hats and need help juggling key tasks. Advisers can win their trust by creating services to meet some or all of these needs and making the entrepreneurial dentist’s life easier.

Conclusion – make a plan, and use it

In short, to succeed in this space, it is essential to have a professional team in place and a clear plan to attract HNWs. If you look at your competitors and think they got lucky, that they were there at the right time and in the right place, you have probably drawn the wrong conclusion. Most have made considerable effort to understand client’s real needs and serve them better as a result.