How do rich people select a financial advisor?
August 26, 2010 4:19 AM
How do wealthy people select a financial advisor? Besides word of mouth, which i think is number one no matter what your socioeconomic status is - Do they respond to traditional print and web ads like the rest of us or do they use some other approach?
-rich people baffle me.
Word of mouth, mostly. Though it depends on what you mean by "rich."
If you're talking about people who make $100,000-$1,000,000, then yeah, advertising is probably effective on some level. But most people don't switch financial planners all that often, so the effect of advertising is probably smaller than for other services. People may change insurance carriers every couple of years, but once they've got their finances set up, switching planners is expensive and time consuming.
But if you're talking about people who earn more than that, you're probably moving into a more exclusive sphere. Many if not most of these people will hire someone to manage their finances, sometimes actually hiring someone full-time. I don't imagine Bill Gates or Warren Buffet wanders down to their local Edward Jones franchise. They're engaged in financial transactions on a level which goes way, way beyond your typical middle-class personal investor, and the number of people who need and provide these sorts of services is small enough that advertising isn't all that useful.
It's like the big corporate law firms, e.g. Kirkland and Ellis, Skadden Arp, Jones Day, DLA Piper, etc. Most of the really big players don't advertise much, if at all, because they don't need to. The people who need their services know who they are already. These deals are closed not because of print or web ads but over fancy dinners, rounds of golf, and benefit banquets.
posted by valkyryn at 5:38 AM on August 26, 2010
If you're talking about people who make $100,000-$1,000,000, then yeah, advertising is probably effective on some level. But most people don't switch financial planners all that often, so the effect of advertising is probably smaller than for other services. People may change insurance carriers every couple of years, but once they've got their finances set up, switching planners is expensive and time consuming.
But if you're talking about people who earn more than that, you're probably moving into a more exclusive sphere. Many if not most of these people will hire someone to manage their finances, sometimes actually hiring someone full-time. I don't imagine Bill Gates or Warren Buffet wanders down to their local Edward Jones franchise. They're engaged in financial transactions on a level which goes way, way beyond your typical middle-class personal investor, and the number of people who need and provide these sorts of services is small enough that advertising isn't all that useful.
It's like the big corporate law firms, e.g. Kirkland and Ellis, Skadden Arp, Jones Day, DLA Piper, etc. Most of the really big players don't advertise much, if at all, because they don't need to. The people who need their services know who they are already. These deals are closed not because of print or web ads but over fancy dinners, rounds of golf, and benefit banquets.
posted by valkyryn at 5:38 AM on August 26, 2010
There is a whole class of advisors who handled those with more than 5 million in assets. They do market, but it is usually pretty targeted like Bessemer Trust sponsoring "The Breeder's Cup". The next tier up from that group would be hiring an outsourced family office sort of thing - where you have several people who work for you and a few other families and basically handle EVERYTHING - from helping you structure buying your plane tax efficiently, finding you help for your vacation homes, to getting your kid into a good rehab center. The step above that is having your own family office that just focuses on you and yours. Once you get above that (and the number of families at that level you can probably count on your fingers and toes) you essentially enter the institutional world and there is a whole other set of people you can hire. Although even then you might still have the family office to do the day-to-day stuff while you set something up like Cascade (Gates) or MSD (Dell) to handle your investments.
posted by JPD at 5:50 AM on August 26, 2010
posted by JPD at 5:50 AM on August 26, 2010
ETA: Once you get above the HNW level it is all going to be connections and word of mouth.
posted by JPD at 5:51 AM on August 26, 2010
posted by JPD at 5:51 AM on August 26, 2010
How do wealthy people select a financial advisor?
Define what you mean by "wealthy."
Let's break this down by various levels of net worth:
$100,000 to less than $5,000,000: You likely will get the attention of a "wealth adviser" at a major brokerage firm, like Schwab or Citi, etc. But you will be one of many clients. You can get an appointment with these guys either by client referral or by calling up their main office and saying "I need a financial adviser."
$5,000,000 to less than $50,000,000: You get an individual, who has relatively few other clients, to give you (and your family) individual attention. You may be able to get invested in hedge funds and other illiquid investments not available to the general public. You can get an appointment with these people primarily through a referral (your lawyer, your accountant, your investment banker, your father-in-law, etc.) Personal relationships matter much more here.
$50,000,000 and more: You likely have a "personal wealth manager" or some such person who is devoted primarily to your and your family's interests. You and a couple of other wealthy (but not private jet-wealthy) families may pool your money into a "family office" and have a team manage your pool of money exclusively.
(These are broad categories, and reality may be slightly different. But the general point is that "wealthy" is an amorphous and relative term, and different levels of "wealth" yield different levels of treatment by wealth advisers.
posted by dfriedman at 6:42 AM on August 26, 2010
Define what you mean by "wealthy."
Let's break this down by various levels of net worth:
$100,000 to less than $5,000,000: You likely will get the attention of a "wealth adviser" at a major brokerage firm, like Schwab or Citi, etc. But you will be one of many clients. You can get an appointment with these guys either by client referral or by calling up their main office and saying "I need a financial adviser."
$5,000,000 to less than $50,000,000: You get an individual, who has relatively few other clients, to give you (and your family) individual attention. You may be able to get invested in hedge funds and other illiquid investments not available to the general public. You can get an appointment with these people primarily through a referral (your lawyer, your accountant, your investment banker, your father-in-law, etc.) Personal relationships matter much more here.
$50,000,000 and more: You likely have a "personal wealth manager" or some such person who is devoted primarily to your and your family's interests. You and a couple of other wealthy (but not private jet-wealthy) families may pool your money into a "family office" and have a team manage your pool of money exclusively.
(These are broad categories, and reality may be slightly different. But the general point is that "wealthy" is an amorphous and relative term, and different levels of "wealth" yield different levels of treatment by wealth advisers.
posted by dfriedman at 6:42 AM on August 26, 2010
According to the book "The Millionaire Next Door" most wealthy people are going to be pretty normal but simply more value conscious than most but a lot of this depends on how you're defining wealthy.
My guess would be that there is a shift towards word-of-mouth and referrals as the wealth of the individual goes up since trust in the advisor's ability and that they are looking out for their client's best interest will be more important than the cost.
posted by VTX at 6:47 AM on August 26, 2010
My guess would be that there is a shift towards word-of-mouth and referrals as the wealth of the individual goes up since trust in the advisor's ability and that they are looking out for their client's best interest will be more important than the cost.
posted by VTX at 6:47 AM on August 26, 2010
Well, having just talked to 200+ "family wealth advisors" in the course of my work, most pride themselves on not having to advertise & getting their business by word-of-mouth. A lot of them do have websites. The keywords you're looking for are "family office" and "family wealth services". "High net worth individuals and families" is another common catch phrase. And a lot of them are primarily consultants --they don't draw up paperwork-- and operate on the assumption that you will already have a lawyer, an accountant, etc., and just need someone to coordinate the team/check over the work. But a significant portion do offer some of these services as well, or a "manager search" option to find you the right expert.
posted by Ys at 7:44 AM on August 26, 2010
posted by Ys at 7:44 AM on August 26, 2010
Private banks are an option for high net worth individuals (minimum $2 or $3 million to invest, not total net worth). These banks may be units of well-known public banks, or may be standalone businesses. As others have said above, the choice of private banker is usually word-of-mouth or acquaintance.
posted by catlet at 8:29 AM on August 26, 2010
posted by catlet at 8:29 AM on August 26, 2010
Some seek out returns others stick to their family advisors, others have relationships with certain banks that span time. Hard to consolidate "wealthy" people into one bucket.
posted by Hurst at 9:55 AM on August 26, 2010
posted by Hurst at 9:55 AM on August 26, 2010
I guess i really don't know what my definition of wealthy is other than, "a lot more than what a middle class american is worth". These answers are quite useful. Thanks.
posted by Paleoindian at 12:49 PM on August 26, 2010
posted by Paleoindian at 12:49 PM on August 26, 2010
Even the term "middle class American" is a bit squidgy here. Most people have no assets, and a few have billions, and there's a huge, huge range in the middle. Median household net worth was $120,000--and that includes the value of your house, which is most people's largest asset--but as you can see from the same link, mean income is north of half a million. That's a huge difference, and it suggests that there are way, way more people with almost no assets than there are with assets in excess of a million.
So the vast majority even of middle class Americans will not have enough liquid assets to even need a financial planner. I currently make something like 50% more than the national GDP per-capita, making me theoretically better off than most middle-class Americans, but my net worth is currently in the negative six figures due to student loans. If I'm lucky, I'll be worth nothing in ten years. So my need for a financial planner is nonexistent. There are plenty of people like me, though in most cases their major debt is a mortgage, not student loans. Either way, you've got almost no wealth to speak of.
posted by valkyryn at 1:26 PM on August 27, 2010
So the vast majority even of middle class Americans will not have enough liquid assets to even need a financial planner. I currently make something like 50% more than the national GDP per-capita, making me theoretically better off than most middle-class Americans, but my net worth is currently in the negative six figures due to student loans. If I'm lucky, I'll be worth nothing in ten years. So my need for a financial planner is nonexistent. There are plenty of people like me, though in most cases their major debt is a mortgage, not student loans. Either way, you've got almost no wealth to speak of.
posted by valkyryn at 1:26 PM on August 27, 2010
This thread is closed to new comments.
When their sons inherited the money, they also kept it with the same guy.
posted by dzaz at 4:42 AM on August 26, 2010