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INTERVIEW: Fidelity's Stance On What UHNW Clients Really Want

Eliane Chavagnon

30 January 2013

As scores of industry players attempt to capitalize on the multi-family office market, one firm which has grown from zero to $13 billion assets under administration in two years recently told Family Wealth Report that it is looking beyond investment services and focusing on the more “subtle and cultural” requirements of the increasingly complex ultra high net worth RIA segment.

Fidelity characterizes UHNW clients as individuals with investable assets of at least $25 million and “distinct needs”; it serves them through partnerships with RIAs at its Fidelity Family Office Services business. Ed Orazem, president of FFOS, explained how the firm launched its UHNW business in 2011 to address an “unmet need” in the market at the time - a move that was based on a “demand pull rather than a supply push” from registered investment advisors with a similar book of business.

The features and functions on offer at the UHNW business are very similar to those offered by Fidelity Institutional Wealth Services, aimed at HNW clients, as well as to those you can find across the industry in terms of custody, brokerage, investment, reporting and administrative services. The differentiator, Orazem says, is in service level between high and ultra high net worth clients. This comes down to focus, expertise and customization.

He explains: “We, for example, are relatively small, which means we can be very fast. We’ve designed our service model to enable incredible levels of communications so that we all understand our clients. We only have 60 people on our team and we all sit in a single room. I do not have an office; I sit in the middle of the room. We also have a ‘no voicemail’ policy - when the phone rings, someone will pick it up who knows that client. There are no call transfers,” he says, adding that RIAs aren’t accustomed to this level of service. “When you’re dealing with a much larger firm you just can’t get that.”

An “on call culture”

Interestingly, a 2011 Spectrem study revealed that unreturned calls were a key reason clients left advisors, while more recent research shows that clients have become increasingly concerned about the quality of advisor contact.

“Given the availability of this level of communication it is now becoming an assumption; clients expect that you are always available and they expect a quick response,” Orazem says. “There is no question that people are increasingly ‘on call’.” And somewhat predictably, as wealth increases, dissatisfaction in many service models in the market also increases, he adds. “When you get an 800 line or you end up in a different city or overseas, for example - people are becoming very impatient with that. They want to connect and they want an answer right away.”

This echoes recent insight from The Futurewealth Report: Stepping into the Communication Age, published jointly by SEI, Standard Chartered Private Bank and Scorpio Partnership (view here). “Our findings show that the wealthiest individuals want a more dynamic relationship; they want to be able to engage with their wealth provider using the same tools that they are already actively using in their everyday lives,” said Catherine Tillotson, managing partner at Scorpio Partnership. The findings also suggested that the wealthiest among the world’s budding wealthy population are more digitally savvy than their less affluent counterparts.

UHNW expectations

According to Orazem, UHNW clients and their advisors want “exceptional referrals” to industry professionals, as well as connections to a peer network and access to industry associations. “They want to know best practices, perspectives and insights on topics impacting their families, such as educating the next generation, gifting strategies and structuring trusts,” he says. They also tend to have more complex account structures, refined needs, and therefore require a more advanced level of service overall. “For example, when a multi-family office calls about a trade, rather than a straightforward transaction, they may be trading a concentrated position - that requires a deep understanding of the capital markets in order to implement the right trading strategy.”  

In terms of how requirements have evolved over time, Orazem says his firm is seeing a lot more global investing, more alternatives and a different variety of control features - “call backs for this but not for that” - among other operational stresses. As a result, the program has extended its working hours.

Research is carried out on an ongoing basis to identify how the wealth management industry is changing due to new regulation, technologies and other global advancements. Most findings point to a radical shift in how firms are dealing with evolving client needs and, as a result, have adapted - or indeed have launched new - services.

Results from an SEI poll last year for example outlined that wealthy families are “craving” new ways of communicating and working with their advisors, as well as looking for innovative strategies for building and sustaining wealth. “After everything that’s gone on in recent years, they understand that sometimes it takes a different approach to be successful,” said Michael Farrell, managing director for SEI private wealth management. This study involved 100 individuals, representing families with at least $20 million in financial assets. 

One of the key aspects of dealing with UHNW clients - that comes up time and time again - is complexity. This is often the result of the multi-generational nature of investments and philanthropic intereststs, for example. Nowadays, this must also take into account evoloving family structures - something US Trust is aiming to address with its new offering aimed at the “modern wealthy American family.”

Indeed, despite the fact the space is notoriously challenging, many firms clearly see an opportunity and are targeting the UHNW market with new offices and key recruits. Last year US Bank made numerous hires at Ascent, the highest-end business of its wealth units. Most recently, in December it added Michelle Walker and Robert Stadler as managing director of investment consulting and managing director of private banking, respectively, in Seattle. The business also opened its doors in Cincinnati, with plans to open its doors in San Francisco and San Diego this year. Equally, Orazem says his firm is seeing a lot of wealth generation along the West Coast, which he adds is home to some of the industry’s most “vibrant” advisors.

Picking advisors that are in the same swim lane

However, there are issues to contend with. Last fall, a survey conducted by Spectrem Group found that the number of wealthy investors who are satisfied with their financial advisor had fallen over the previous year. Among investors in the $5 million - $25 million wealth segment, not including primary residence, just 73 per cent said they were satisfied overall with their advisor, down from 80 per cent in 2011 and 81 per cent in 2010, pointing to a startling downward trend.

On this note, Orazem emphasizes that at Fidelity much scrutiny goes into the advisor selection process to participate in the UHNW program. Above all, if they are not focused - if they “dawdle” - they “cannot be credible in the long run”, he says. “If they don’t exhibit familiarity with some of the more complex planning strategies, if their investment strategy doesn’t involve more complexity…you can be pretty sure they’re not really qualified to be in the market and then they won’t truly appreciate what we do.”