Ultra-wealthy investors - those with $20 million or more in investible assets - can be lucrative clients for wealth managers. But conversely, these clients often have more complex planning and investment needs than some financial advisers are prepared to handle.
The ultra-high-net-worth market in the US includes about 94,161 households with an average of $38 million in assets, according to a 2014 report from asset manager Cerulli Associates.
It is easy to see why such investors present an attractive market for wealth managers who win their business, but the competition for these clients is intense. Independent registered investment advisers (RIAs) contend with banks, wirehouses, multifamily offices and many other companies hoping to manage this wealth. Advisers who do not already have a foothold in the market may have a difficult time breaking in.
"Advisers are attracted to [this] space because of the size of the potential assets. They view it as a relatively easy way to scale up their business," says Michael Zeuner, a managing partner of WE Family Offices.
But that approach is likely to fail, he says. To serve such clients successfully, advisers must be able to help them plan for multi-generational wealth, which is a more complex and less scalable endeavour.
While many affluent or even high-net-worth clients may burn through their assets within their lifetime, ultra-wealthy investors often intend to leave their money to their children or grandchildren, raising the level of complexity for wealth managers, says Maria Elena Lagomasino, chief executive and managing partner of WE Family Offices.
Serving this market requires more resources and time, says Ms Lagomasino. For example, her company has about 50 personnel serving about 70 families.
A typical adviser at the company will work with five families or fewer. The investment process is also more complex, she says.
"[These clients] see the world as opportunity and most of them have made money in real estate or operating businesses," Ms Lagomasino says. "They don't just like to invest in stocks and bonds. It becomes a very diverse set of investments, all of which have to be knitted together to [meet] a specific investment objective of the family."
Ultra-wealthy clients have less need for short-term liquidity and can invest more in long-term illiquid propositions, says Jack Markwalter, chief executive and chairman of Atlantic Trust. That means their portfolios may include private equity, hedge funds, emerging markets investments and property.
"Once you reach the level of ultra-high-net-worth, from an investment point of view, you are able to lean into risk to a greater extent," Mr Markwalter adds. "You can absorb more volatility if necessary."
Greater levels of wealth also allow ultra-wealthy families to have a heightened focus on using their wealth to create a family legacy or to make a positive impact, he says. "As clients move up the wealth curve, there's more of an opportunity and propensity to have wealth with purpose."
Advisers of ultra-wealthy clients should also be able to assist families with talking about money in the family, raising children who are financially aware, dealing with security issues, creating a trust or foundation and making decisions around philanthropy, Mr Markwalter adds.
Very wealthy families often ask advisers for help with everything from walking their dogs to structuring the ownership of their private jets, says Andy Hart, managing partner at Delegate Advisors. But that does not mean that RIAs serving ultra-high-net-worth clients have to do it all. Part of what makes the top companies successful is knowing when to outsource, Mr Hart says.
RIAs serving such clients do not need to walk the dog themselves, but they do need to know the best third-party experts to whom to delegate such a task, he adds.
Delegate Advisors does not share revenue with providers, but those providers will sometimes offer referrals of prospective new clients.
Intermediaries such as trust and estate lawyers, accountants, and other investment companies, can be good sources of referrals, says Eric Propper, president of Atlantic Trust. "Client satisfaction goes a long way in helping us attract new business."
But for advisers who do not already serve the ultra-wealthy, breaking into the market can be tough, says Mr Hart.
"The most profitable RIAs are the ones that scale into the ultra-high-net-worth business and have fewer, larger clients," he says. "It's just hard to get into that business."
And even if a RIA is able to lure away an ultra-wealthy client, the resources required to serve them effectively may be tough for some companies to provide.
"It's a relatively non-scalable business," Mr Hart says. "Everybody says they want to serve $500m dollar families, but when you realise what you need to do to serve them effectively, it's hard to scale a business."
