| March 28
March 28 Wealth managers routinely specify
minimum sizes for new accounts, but far fewer advisers set
maximums. Maybe they think "the bigger the better," but that is
not necessarily true.
High-net-worth clients, especially those with $30 million or
more, are different from garden-variety millionaires. They do
not sweat the small stuff, like planning for their kids'
education or retiring comfortably, so they do not value basic
financial planning services as much as less-affluent clients.
Very wealthy clients often expect investment services and
products beyond those offered by smaller wealth managers. They
may require income- and estate-tax strategies that are more
complex than the adviser can deliver.
This mismatch of client expectations and adviser services
can actually hurt a wealth management practice that is not set
up to manage all that money.
STICKING WITH MASS AFFLUENT
Marc Freedman, president of Freedman Financial in Peabody,
Massachusetts, sets an informal ceiling of $7 million in
investable assets on the accounts he accepts.
He works primarily with baby boomers whose net worth ranges
from $1 million to $3 million. These so-called mass affluent
clients want a financial plan and are mainly interested in
ensuring retirement security and passing some wealth to their
"Mass affluent baby boomers don't need to participate in
private equity deals, complicated alternative strategies,
options trading, stock swaps and more," Freedman says.
Several years ago, he started working with a couple with a
net worth of $10 million, of which more than $8 million was in
shares of the husband's employer. The wife wanted investment
diversification and a plan for the family's long-term financial
security, so Freedman developed strategies to accomplish those
The husband vetoed the approach. He decided instead to hold
the shares, then trading around $35, until they doubled or
tripled. In the interim, his plan was to use rapid-turnover
options strategies to profit from the stock's volatility.
Things did not work out as either party hoped.
"After about one year, this client became a point of
exhaustion for our entire staff," says Freedman. "His needs were
intimidating, and his willingness to respond to our calls was
based on how volatile his stock was during the day or week.
"In the end, to the wife's disappointment, we agreed to
terminate the relationship."
Going solo did not solve the ex-client's problems. He never
sold a share as the stock fell to $6, the marriage is strained,
and his wife continues to email Freedman for financial advice.
Freedman says he offers "sparse, yet supportive" counseling.
CHANGING BALANCE OF POWER
Mark Willoughby, principal with Modera Wealth Management in
Westwood, New Jersey, says most of his clients' portfolios are
in the $2 million to $10 million range. The firm has an informal
maximum of $20 million.
He would waive that limit for clients who want a traditional
portfolio that is not too heavy on alternative investments and
whose financial needs do not exceed the firm's capacities.
But he notes that there may be a business risk to chasing
the wealthiest clients because they can squeeze an adviser's
"Once you start going after the elephants, their leverage to
negotiate on fees is much stronger than the person who has a $2
million portfolio," Willoughby cautions.
An ultra-wealthy client may also disrupt your cash flow and
leave you vulnerable to a defection. When one client accounts
for 5 percent or more of your total assets under management, for
instance, you really have to worry about losing him or her.
San Francisco-based advisory firm Yeske Buie manages about
$500 million of assets, and the average client account is $2
million. It will not turn down the big client, though, and
recently landed a $50 million portfolio.
If an account generates more than 5 percent of the firm's
total revenue, that income gets carved out from the ongoing
budget and spending decisions and is earmarked for one-time
expenses, says Chief Executive Officer Elissa Buie.
That approach keeps the firm from depending too much on fees
from any one client, she says.
So rather than using what it earns from the new mega-client
to run the office, the firm is hoping the money will pay for
larger wall monitors in conference rooms and replacing
employees' dual desk monitors with upgraded equipment.
(Editing by Linda Stern and Lisa Von Ahn)