For Wealthiest Clients, 4 Best Practices

For advisors to the wealthiest families, a new report suggests that it's not what you do that matters — it's how you do it.

More specifically, it's the way that wealth management services are delivered to rich families — as opposed to the service menu itself — that has become the biggest differentiator for leading advisory firms, according to a new report from the Family Office Exchange. That smarter approach to client service is what will help firms stand out in an era of product commoditization, according to the report, The State of the Art in Family Wealth Management.

The report breaks out four characteristics of ground-breaking wealth management firms:

1. ASKING WHY BEFORE ASKING HOW

Understanding clients' goals, comprehending the big picture and putting situations in context are critical, the report says.

To do that, advisors need to find out "what is behind a family's pain point," says Amy Hart Clyne, director of market and content development for FOX and author of the report. The answers often are rooted in family dynamics, which is where family governance comes into play.

Even though the "soft" side of wealth management has risen in popularity over the past decade, wealth advisors are still often not viewed "viable partners" in family governance, and are overshadowed by attorneys and accountants, Hart Clyne says. "There is a real opportunity to get this right," she maintains. "The demand is there."

The challenge, she adds, is that firms have to figure out the best way to charge for the service.

2. UNDERSTANDING HOW PIECES FIT TOGETHER

The wealthiest families have complex needs, so advisors must be able to understand how one change might affect other elements of a plan, says Hart Clyne: "It's all about integration, like interlocking Legos."

The report recommends advisors make sure plans are interconnected in three key areas:

3. PROMOTING TEAMWORK AMONG ADVISORS & CLIENTS

State-of-the-art advisors develop team-based incentives in the form of performance goals and shared compensation, the report says, and promote teamwork with clients "by encouraging open dialogue and structuring fees in a way that supports it."

They "actively seek opportunities to partner with other advisors to leverage natural synergies and ensure strategies are aligned," the report says.

This one is easier said than done, of course; for advisors, sharing performance goals and compensation "takes courage," Hart Clyne admits.

What's more, clients are wary about advisors from different firms working together, because they think they will have to pay more. "Advisors will have to demonstrate the value of teamwork to make it work for everybody," Hart Clyne says.

4. FACILITATING FAMILY COMMUNICATIONS

True communication is "more than a transaction where information is passed from one person to another," the report says. "State-of-the-art advisors communicate strategically and proactively, anticipating their clients' needs with regular frequency."

Hart Clyne cites the example of a wealth management firm that provided an "outstanding estate planning service" for the patriarch of an ultrawealthy family. Yet while the patriarch loved the plan, his heirs didn't see it until after he died — at which point they were disappointed and "flummoxed," Hart Clyne says.

"The advisor should have encouraged the patriarch to share the plan with others in his family sooner," she says. "It sounds simplistic, but it's not easy to bring something like that up. But that's what a trusted advisor needs to do."