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Monday, August 11, 2008

Prospecting the High Net Worth Client

Prospecting the high net worth prospects, the person with a million dollar portfolio or the one that buys million dollar (or multi million dollar life policies) can require different tactics than prospecting the “mass affluent” market (i.e. those with less than $1 million of investment assets).

I say “can” require different tactics because there are two equal-size wealth markets—the half who have accumulated significant assets but do not think of themselves as rich and those that have similar financial circumstances yet do think of themselves as wealthy.

According to a study by the Spectrem Group, there are 107,023,917 households in the United States. Of that number 3,737,000 have investable assets in excess of $1 million. On a national basis, that means that 3.49% of the households have a million in liquid funds, even though the average would exceed 6% in more affluent communities like Nassau County, San Jose or West Palm Beach.

Strategies for prospecting the down-home wealthy

The first half of the high net worth market comprises the “millionaire” next door as described by Dr. Tom Stanley, “The real American millionaire is John Doe, age 57, who has been married for 32 years to the same woman, owns a highly productive small or medium-sized business, has two children, and works 10-14 hours a day, six days a week.” You can picture this guy—a real “Sam Walton type,” driving his older pick up truck and sill living in the same 3 bedroom 2 bath home even though his net worth is $5 million. These people have created their wealth by starting businesses or investing in real estate and still behave like “salt of the earth” people.

This fellow responds to the same type of marketing as the buyer from the mass affluent market: general seminars, direct mail and advertising. There is nothing different you need to do to reach these folks if you are already prospecting the middle market. In fact, there is little you can do to isolate these folks as they live in middle-income neighborhoods and they are inconspicuous as they don’t buy luxury cars or rent the presidents suite when taking a cruise. Because multi-millionaires are fewer in number, a seminar that attracts 50 people will only have 3-5 attendees that are multi-millionaires from the high net worth segment.

This group is heavily populated by real estate owners and small business owners. Therefore, one way to isolate these folks is to obtain a list of residential rental property owners or commercial property owners and of business owners with fewer than 50 employees. (Any list broker can help you). Not only can you contact them individually, there may be property-owner associations or business owner associations that can become a prospecting platform (for talks or getting published in their magazine).

Mass marketing techniques, however, will not work on the other high net worth group, the Armani-suit wearing crowd. These people do not respond to the same tactics that work with the mass affluent and need to be met through introduction, social or professional circles. They live in rich neighborhoods, drive late model luxury cars, belong to ”the club” and may be immersed in their self-importance.

Strategies for prospecting the wealthy

You meet them on their turf. Dick Heckman joined the best country club in Palm Springs, played golf 3 times a week at 2 pm and met wealthy business owners and retired and large shareholders of major companies. Never having more than 62 clients, he became one of the wealthiest financial producers in the US.

Each year, when the opera in your city has the annual gala, you buy a table for $2500 and bring your best clients (a nice treat for them). You will get noticed. The following week, if you are not called to volunteer on one of the opera committees, make the call and volunteer yourself. The committee will be populated with usually wealthy older patrons of the arts. You make friends, get invited to heir parties and leverage each contact to the next.

You dominate an industry. One planner I know has realized that franchise owners are wealthy folks. So he found out that they had a local association at which he could give a talk. He called each franchise owner individually and set a time to meet. He did not call them to get immediate business, but rather called them with a soft sell approach, “I understand you are a successful franchise owner. I am building a financial planning firm that assists franchise owners. Could I interview you about the greatest challenges that franchise owners face?” He has written an article on pension plans, for their newsletter, specifically addressing the franchise owner situation.

You focus on money in motion. Money is in motion during the following events:
Death—do you prospect estate attorneys?
Employment termination—one successful advisor contacted an outplacement firm. He offered his 2-hour class, “How to manage your money between jobs” to the outplacement firm’s clients—executives that had been laid off. These executives need to rollover some hefty 401k balances—who do you think gets hired?
Sale of a business—do you prospect business brokers?
Sale of Real Estate—do you prospect commercial real estate brokers?

You develop a specialty that wealthy people seek. A financial advisor, in order to fill a room with wealthy real estate owners, secured a list of people that owned at least $1 million of real estate. He sent a seminar invitation entitled “Estate Planning for Owners of Residential Income Property.” He had 58 millionaires in the room.

You cultivate relationships with people that can introduce you to their wealthy clients. These are called host-beneficiary relationships. You find a host that has relationships you want and you become the beneficiary of those relationships. Think beyond CPAs and attorneys.

What about the owner of the Mercedes dealership? Might he be interested in inviting his best clients to lunch and a talk (by you) on “Maximizing the Tax Benefits from Business Use of Luxury Cars, Boats and Vacation Properties.” Would the commercial real estate broker like to have you write a booklet or give a talk to his prospects, “How to Use a Capital Gains Elimination Trust to Avoid Capital Gains Taxes?” (I always start a discussion of charitable remainder trusts calling them “capital gains eliminations trusts” so that people listen before they prejudge). What other hosts can you think of that have wealthy clients where you can be the beneficiary?

What do the wealthy want?

Seventy percent of high net worth Americans feel that preserving wealth is their most important goal, according to a survey released by the Lincoln Financial Group of Philadelphia. Right behind preserving wealth was avoiding excessive taxes, listed by 59% of the affluent group as a “very important” goal. In fact, avoiding excessive taxes was ranked higher than accumulating additional wealth. Yet, surprisingly, less than a third of the affluent said that they feel that they have adequately protected their assets from excessive taxes, according to the survey.

The number one income-consuming category among the affluent is income taxes. Yet financial advisors have done a poor job in developing ways to help the high net worth crowd. Many do not have expertise in the more powerful income tax saving vehicles:
412i plans
Private insurance companies (see
Defined benefit plans
This is the type of expertise to develop.