In the world of wealth management, serving ultra-high-net-worth (UHNW) clients can be an alluring prospect for many firms. However, the complexity and unique demands of UHNW clients pose challenges that require innovative solutions and an understanding of their distinctive needs. We sat down with Rick Higgins, CEO of Risclarity, and Paul Ferguson from Schwab Advisor Family Office to get their insights.
HNW vs UHNW - Understanding the Distinction:
Before we dive into what firms need to serve UHNW clients, it’s helpful to clarify the market. Paul shares that at Schwab, they have custody assets for both single family offices and multi-family offices. Their single-family offices generally have around $500 million in assets, while multi-family offices manage significantly larger portfolios, averaging around $2.5 billion.
UHNW clients have taxable estates, complex legal and tax structures, and access to a wide array of investments. This complexity necessitates a high-touch approach that goes beyond conventional wealth management services. The sheer magnitude of the assets and complexity involved in managing UHNW clients requires a strategic approach to scaling.
UHNW clients also have heightened exposure to risk, from cyber-attacks, online fraud, reputational risk, personal security, and privacy. Families face complexity in more fundamental areas like the ever-evolving tax code, introduction of alternative investments, and erosion of privacy since the popularity of social media.
The magnitude of assets, potential risk, and complexity involved in managing UHNW clients requires a strategic approach to scaling.
Scaling Strategies: Two Approaches
It can be difficult for a wealth management firm to add and scale their services for UHNW clients. Paul shares two primary approaches to achieve scale: talent and technology.
Firms need experienced professionals who understand the complexities of UHNW clients and can deliver exceptional service. Rick Higgins agrees with Paul and thinks that the high touch nature of the family office space means a much greater need for experience. “That part is very challenging to scale, the people themselves and the trust and the competence and the education and the talent and all of the things that go into that. But there's a lot you can do with technology to scale their ability to serve more clients. For example, where historically you were reliant on the bookkeepers or portfolio analysts to pull together data from various sources into an Excel spreadsheet. This could take anywhere from 10 days to 3 months depending on the complexity and sources of the data. Technology can take those middle and back-office functions and make them faster and more consolidated.”
Embracing technology designed specifically for UHNW clients enables efficiency and improved client experiences. Historically, technology firms have not focused significantly on the ultra-high-net-worth market because they didn't feel it was large enough, so they have focused on more mass affluent type technologies. This is changing, and firms like Risclarity have done a great job of putting together different systems that benefit the UHNW client.
Change management is often a challenge for firms when upgrading their technology. Rick advises firms to identify what is working effectively and to focus on augmenting or supplementing areas that need improvement rather than overhauling the entire system. This phased approach allows for a smoother transition and minimizes disruptions.
The first step that Paul recommends is segmenting the client base to better tailor services. By understanding the distinct needs of each client group, firms can offer specialized solutions. Outsourcing certain services can be beneficial, but Paul stresses that firms should assess their clients' specific needs before implementing any new service.
Differentiating with Technology
Rick highlighted the importance of differentiating through technology, particularly for UHNW clients who expect highly personalized services.
Most wealth management firms that focus on UHNW market themselves as high touch, meaning they will cater to the clients and deliver whatever the client needs. From a reporting perspective firms will change a report to be focused on investments for one client, focused on high level trends for another, and focused on every buy and sell for an accountant. The reality is most firms are not able to deliver a customized report for each client that meets their needs and requests. Most firms say, "We do it one way, this is what you get. If you don't like it, go somewhere else," they can do that for the mass affluent. But when you move into that high-net-worth market, you can't do that anymore.
Paul summarizes it well when he says, “the differentiator is not the fact you have the technology. The differentiator is the fact that you're able to deliver what the client wants in a very efficient way, which most firms cannot do.” The bottom line is that UHNW clients expect custom-configured applications and reports that cater to their unique preferences, including everything from font size, the color of the paper the report is printed on, to the way the data is represented.
Scaling the unscalable to serve UHNW clients is both a challenge and an opportunity for wealth management firms. By leveraging technology, understanding client needs, and embracing a strategic approach to scaling, multi-family offices can thrive in catering to the distinctive requirements of ultra-high net worth clients. Through continuous innovation and customization, the quest to serve UHNW clients becomes a rewarding journey of growth and success.
About Risclarity:
Since 1997, Rick and his team at Risclarity have focused on the integration and rounding out of the ecosystem for wealth managers, specifically family offices. This includes supporting their infrastructure, their reporting needs and partnering with firms like Schwab to help family offices handle the complexity involved in serving UHNW families.
Specifically, they work with firms to integrate all of their off-the -shelf software products such as, portfolio accounting, general ledger, bill pay, CRM, document management, and complex reporting, to create a data model that is built for these discerning clients. They use a lot of the firm's existing building blocks to create a custom configured application.
About Schwab Advisor Family Office:
Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Charles Schwab & Co., Inc. Independent investment advisors are not owned by, affiliated with or supervised by Schwab.AdvisorServices.Schwab.com
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