Advisors looking after clients with annual incomes consistently above $1.0 million make up only a small fraction of the total. They face a number of challenges, the author of this article shows.

The following guest article is by Hannah Shaw Grove of iCapital Network, a US platform that, it says, democratizes access to alternative investments such as private equity, hedge funds and other areas. This article examines results of its recent research into the type of service that a certain segment of the US advisory industry offers.

The editors of this publication don’t necessarily endorse all the views of contributors but are grateful for the chance to share insights and invite readers to respond. They can email the editor at tom.burroughes@wealthbriefing.com

Elite advisors – professionals with annual incomes consistently exceeding $1 million – are more likely to offer holistic wealth management services to their high-net-worth clients than other advisors according to research from iCapital Network. The research was conducted with more than 800 advisory professionals and examined the use of more than 40 different activities, services and techniques that spanned from the early stages of business development through client onboarding and ongoing relationship management.

Every advisor surveyed provides investment management services – a fact that helped to establish a baseline for how the large majority of advisors operate today on behalf of their clients and may indicate that investment advisory by itself is no longer a differentiating factor, but rather a requirement to compete.

By contrast, top earners have purposefully extended their capabilities to include a more robust range of investment offerings, as well as advanced planning and lifestyle support in order to provide more comprehensive solutions to their affluent clientele.

Offer sophisticated investments
On the investment front, private equity and hedge funds are more likely to be offered by elite advisors than their less successful counterparts. As evidence, 100 per cent of advisors with million dollar incomes provide hedge funds as compared to just 20 per cent of the total population surveyed (Figure 1). Similarly, about eight in 10 elite advisors offer private equity as compared to just 11 per cent of the broad population (Figure 2).

Figure 1: Provide Hedge Funds, by Annual Income

< $250k                       1.6%

$250k-500k                 5.1%

$500k-$1M                  57.4%

>$1M                           100%

Weighted Average      19.9%

Figure 2: Provide Private Equity, by Annual Income

< $250k                       0.5%

$250k-500k                 1.5%

$500k-$1M                  30.9%

>$1M                           76.7%

Weighted Average      11.2%

As practitioners strategically evolve their platform of investment capabilities, this is a meaningful correlation to consider – albeit not causative. Many hedge funds provide risk mitigation benefits, while private equity offers the potential for enhanced returns. Both strategies are widely used by institutional investors and family offices, and enable elite advisors to offer sophisticated investment solutions to their wealthy clients in keeping with those employed by the largest and most knowledgeable investors.

Assemble outsourcing network
Beyond investment management, elite advisors have carefully developed their outsourcing networks to include a variety of experts so they can offer bespoke wealth management support to their affluent clients and introduce key estate planning, asset protection, tax mitigation, philanthropic and lifestyle services that complement their core investment advisory offering (Figure 3).

And while advanced planning is offered with greater consistency by a broad cross-section of advisors, it’s worth noting that all top earners treat it as a central part of their value proposition and they further distinguish themselves with other specialties that meet the unique concerns of wealth holders. Case in point, 95 per cent of elite advisors can connect their clients with concierge healthcare and 100 percent offer access to private security services, demonstrating awareness that personal concerns about wellness and safety are top priorities for the high-net-worth market.

Figure 3: Access to Specialists, by Annual Income

These types of services are viewed by some as a distinct departure from strict financial planning, but they serve to complement a core offering of investment management and provide a well-rounded suite of services that address the top-of-mind needs of wealthy clients.

The higher the assets in question, the more likely it is that truly customized services will be required. Importantly, many successful advisors are refashioning themselves as generalists and choosing to focus on coordinating the specialists who can help them deliver on a variety of complex strategies, rather than focusing exclusively on a single in-house approach which can be inefficient and costly to modify.

Operating in this way can be especially effective in designing and deploying holistic solutions, ensuring that the full range of products and services are working together toward the same goals while eliminating any redundancies in portfolio exposures and fees that can occur without professional oversight.

Elite advisors represented just 5 per cent of all advisors surveyed, indicating that this level of success is rare within the industry and, most likely, difficult to achieve without concerted effort and access to the right combination of partners and intellectual capital.

As wealth creation continues apace in the US and around the globe, there is a greater need for these types of broad-based practitioners who can deliver a complete wealth management experience and much bigger opportunities for those who can.

About the author:

Hannah Shaw Grove is chief marketing officer at iCapital Network.