View more on these topics

Adam Samuel: The problem with high net worth clients

Beware high net worth clients – they are likely to persuade you to do something you might regret 

Adam-Samuel-MM-700.jpg

Financial advisers are always saying how much they want to attract higher net worth clients in order to make more money. Perhaps these dreams would be best left unfulfilled.

Clients who are richer than you pose all kinds of compliance and legal problems you could live without. First, they can afford to sue you and their legal advisers can bring multiple complaints against your firm to the Financial Ombudsman Service. People often become rich by not taking prisoners. That includes you.

As one adviser asked, why do rich people consult IFAs rather than stockbrokers? The answer horrified me: to obtain access to alternative funds. I have seen far too many firms and individuals who are trying to persuade me they can evade or just ignore the FCA’s position on unregulated collective investment schemes so they can bring exciting funds to their wealthy clients.

Some advisers with wealthy clients see the pound signs in the fees for funds under management then lose touch with reality and basic investment research techniques. One dodgy adviser made a good point about Ucis: “Essentially, you have to be a director of the company to know enough to recommend it.”

A life settlement fund recommended in 2008 missed the point that Americans over 65 in 2000-2008 lived on average 1.2 years longer than in the previous decade. The increase in that 10-year period was 0.4 per cent. No one can build an actuarial model to accommodate that difference.

The amount of financial damage advisers can cause is directly linked to the size of investments they recommend. Any form of alternative investment increases the risk of regulatory, FOS and legal interference. If applied to large sums, this can be fatal.

With richer customers, having your professional indemnity cover properly in place to cover all your activities, with claims amounts high enough to cope, is a basic survival strategy. Advisers must then notify anything that looks remotely like a potential claim. Even then, a bolt can come out of the blue, particularly if you do not work alone. A fellow adviser can destroy your business in half an hour.

Incorporation will one day provide much less protection than it does now. The FCA will someday regard phoenixing where the original failure was the fault of the new firm’s directors as strong evidence of a lack of fitness and propriety.  While all IFAs should have limited liability, it does not protect against individual fines, prohibition orders, personal guarantees and director disqualification.

Wealthy customers can push their IFAs into doing things the adviser knows is not sensible – it happens to compliance consultants too. Insistent customer business is rarely safe or compliant and cannot be converted into non-advised just because the adviser feels uncomfortable. Also, the speed
of response required by some wealthy clients inevitably triggers mistakes.

There is, though, a bigger story. Many IFAs have large amounts of experience servicing a particular type of client in a sensible way along with systems and resourcing appropriate for this. Moving into a different market requires different client management skills and business models. Often, firms which seek these types of new fields could make much more money from their existing customers via efficiency. 

This makes it easier for the firm to accept more customers to fill the time just created. It also enables the business to work with those customers it actually likes. When IFAs reach upwards financially for clients, they often leave their own social and cultural values behind.

Advocates of client segmentation often forget the financial value of efficiencies generated by work enjoyment and satisfaction. Many IFAs do excellent charity work in part because they appreciate this. Helping less fortunate clients who cannot afford to pay much may enable firms to connect with what they are really about.

Chasing clients who do not fit your business model, culture and personal style is bad for stress levels, profitability and can expose firms to the company of regulators, ombudsmen, courts and ultimately, liquidators.

Adam Samuel is an independent compliance consultant

Recommended

Mark-Carney-BoE-700x450.jpg
1

Mark Carney defends Bank against London-centric accusation

Bank of England governor Mark Carney has defended the Bank against suggestions it is too London-centric in its policymaking, arguing the LTI cap will boost lending outside the capital. At a Treasury select committee hearing this morning, Carney said he has visited all 12 regions of the country and large parts of his meetings related […]

Tolley-Steve-peach.jpg
1

Osborne must be bold on pensions guidance

There’s no two ways about it, Chancellor George Osborne’s Budget pensions bombshell was a bold move. It will revolutionise pensions, giving people far more control over what they do with their money as they approach retirement. But it is not a risk free move. Those on the other side of the freedom/paternalism line the Chancellor […]

India-Emerging-Asia-Taj-Mahal-700.jpg

A new dawn for India?

After the recent strong run in Indian equities, is it now time for investors to take profits? Or do India’s new prime minister Narendra Modi’s plans for economic reforms hold the potential for longer-term investment opportunities? India has been a good place to be invested in 2014 – in fact, it has been the best-performing […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Entertainingly candid comments – well done!

  2. Super article Adam. Spot on throughout. My “wealthiest” clients are always those looking to do something esoteric. As such they are also my most rejected!

    Stick to what you know and stick to what you know works. Repeat ad nauseum. I will go to my grave with this mantra: If you can’t help clients achieve their life goals with plain vanilla funds held within an ISA, OEIC or personal pension then you are probably not a very good financial adviser.

    You also have to develop a thick skin and deaf ears, to tune out the relentless “financial porn”. Not easy for clients or less experienced advisers.

    Bottom line: You have to be a rocket scientist to know it ain’t rocket science!

  3. More sound advice from the consistently sensible Mr Samuel!

  4. Excellent article that contains a deep truth few really grasp. The deeper the client pockets the more likely you are to be sued – in many cases for fun, the hell of it or simply because they can.

  5. Good read. I agree completely with Nick Lincoln, sticking with what you know is the key. We don’t recommend UCIS’s as, in my opinion, we don’t have any clients who are financially savvy enough to invest in these types of product. Pensions, ISA’s and OEIC’s/UT’s are our bread and butter.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com