For the past 15 years, the U.S. financial publication Barron’s has compiled a list entitled “The Top 100 Financial Advisors in the U.S.” that’s based on assets under management (AUM), revenue and the quality of these advisors’ practices. The advisors on this year’s list averaged about US$10 billion in AUM.
During the past few months, I’ve talked on the phone with some of these advisors. Despite an account minimum – US$6 million – that puts them in the top strata of advisors, these advisors still provide important lessons that all advisors can learn from. Here are five themes that emerged from my conversations with the top advisors on Barron’s list:
1. Talk about market volatility
Have explicit conversations with clients about how their investment portfolios are positioned for a significant market correction. “No one has forgotten 2008,” one advisor said. “There’s an old adage that, for people with lots of money, return of capital is more important than return on capital. Even if clients don’t bring up the possibility of a market downturn, we still raise this in every client meeting, using that as an opportunity to talk about the level of exposure to a downturn.”
One advisor periodically walks clients through a “lifeboat drill” that simulates what they would do if the market declined by 20%, 30% and 40%. “Just as cruise ships have drills to walk passengers through the evacuation process, even though it almost certainly won’t be needed, we want to discuss how clients will respond to a downturn before they’re in the heat of the moment, when emotions and panic can take over.”
2. Identify your clients’ hot buttons
These top advisors all spend significant amounts of time talking about the specific issues that concern each client. Sometimes, these topics relate to the liquidation of assets in a tax-effective fashion; at other times, the hot buttons may relate to concerns about the client’s adult children or the health of aging parents.
One advisor said that the most common question when new clients come to him is: “What do people like me do with their wealth?” From that starting point, the advisor talks to clients about legacy, philanthropy and estate planning.
Another advisor talked about collaborating with other professionals who work with her clients to minimize the chances of surprises down the road. For example, one of the critical conversations that this advisor has with her clients is about working with their lawyer to ensure that their estate plans protect their children should one spouse pass away and the surviving spouse remarry. “This is not always an easy topic to raise,” the advisor says, “but clients who go through this [process] very often thank me afterward.”
3. narrow your client focus
The top advisors focus on becoming specialists for a segment of clients in industries in which each advisor has built significant expertise.
The advisor on Barron’s list who has the most AUM manages more than US$70 billion collectively for 325 clients. Supported by a 24-person team, his focus is on helping companies in Silicon Valley manage employee stock option plans.
Another advisor manages US$4 billion spread among 50 clients. His clients head businesses that operate across multiple borders and need sophisticated advice on international issues, from currency to market risk management.
4. Position yourself as the fallback advisor
To attract high net-worth clients, having patience is critical. “Low-pressure contact is essential,” one advisor said. “Once I have begun communicating with a prospect, two or three times a year I reach out to them with information or ideas that I think they’d find of value. Some of my largest clients have come from years of this kind of low-key communication.”
Another advisor positions himself as the fallback advisor should anything go wrong with the relationships that prospects have with their existing advisor. “For the prospects I’m cultivating, my goal is to be the first call should their advisor retire or there be a hiccup with their account. If I’m the fallback advisor in enough instances, some of those [prospects] will inevitably become clients.”
5. Invest in a first-class team
Having a capable team is of critical importance. In the words of one advisor: “To solve wealthy clients’ complex problems, a team of specialists is a necessity.”
Building a strong team is a big investment. One advisor talked about taking a course on people management to build his leadership skills.
Keeping a team is equally important: another advisor shares 25% of the profits from her business with key staff members.