Achieving a portfolio under management of USD 500 million of high-net-worth families in a short period of time is not easy, considering the aggressive competition among firms and colleagues visiting the same clients and offering the same products. The elements that can differentiate us are what determine success or failure.
Over the years, we have overcome international and regional crises that have made us experts in how to protect and increase wealth in the face of changes that occur.
But now, the challenge is greater, because we not only have to face the post-pandemic economic changes, including changes in consumer behavior, but also the management of the inflationary phenomena and global interest rate hikes.
Additionally, we are facing a change in our industry, not only due to the arrival of AI (Artificial Intelligence), but also because major firms are migrating their strategies, and advisors are caught amid this chaos.
Therefore, we must make decisions thinking about our plan for the next 10 years, both for ourselves and for our clients.
Analyzing the situation:
a) Many large firms have shifted their focus from “putting their clients first” to ceasing service to those who are not their primary market… without prior notice, or clear future expectations.
b) There are many parameters to analyze, and everything is based on who your clients are: individual or institutional, country, size, sophistication in investments, with or without banking services (credit cards, transfers, loans); and whether your approach is comprehensive, supporting your clients with their assets and efficient planning and organization of their wealth, or if you prefer to only focus on their investments.
c) Clients demand personalized, flexible, and prompt attention; many “large” firms become bureaucratic and when their focus is not on the client, they lose their responsiveness, either relying on machines or on newly advisors focused on promoting “combo” portfolios that often do not meet the complex profile and needs of the client.
d) Advisors understand the clients’ “preservation profile“: strong jurisdictions in which to diversify with properties and financial assets held in well capitalized firms, with diversified portfolios seeking high income and capital growth, taking advantage of market opportunities within their profile (which is generally more conservative than established… when corrections occur) and therefore managing their assets accordingly, as trusted individuals with whom we have weathered various storms together. Our clients seek captains who know how to navigate and reach the destination.
e) We know where their money comes from, and it truly gives us a unique opportunity to respect their work, admire their achievements, and understand the dynamics of our clients, their families, and businesses in order to plan for intangibles – what is more important: the potential 20% market correction which generally recovers over time, or a family going through a divorce and “losing” 50% of their assets? Or an international client in the US with a personal investment account potentially losing up to 40% of their portfolio above USD 60,000 in US securities due to inheritance taxes? (*IRS info). It is part of our work, along with other professionals, to plan with companies, trusts, and other tax-efficient structures.
f) To preserve wealth, we involve future heirs so that they are aware that investment accounts are the funds generated and not spent over many years by their predecessors, along with the compounding effect (* Rule of 72 info), e.g., a portfolio doubles at 7.2% annual rate every 10 years). This way, when they receive them, they don’t “gamble” with them or spend them with their “new” friends.
g) Providing tools is always more educational than giving away, and for this purpose, there are strategies such as borrowing against the family portfolio (so they develop their projects with the discipline of having the obligation to repay); a strategy that is also used to acquire properties in a tax-efficient manner or support local businesses while maintaining the medium to long-term investment portfolio. It is also good for them to learn how it works because diversification and “time in the markets” are the only secrets to financial success.
Considering this description of the context, we must ask ourselves:
At what point in your life are you…
Do you have the resilience to be a “soldier of your firm”, following orders to “close your clients’ accounts” in exchange for receiving the clients of the colleague who dares to take the step, or to retire? Or do you have the energy to be loyal to your clients to do all the work of establishing their accounts again and understand that there will be surprises along the way with the clients themselves, your colleagues, or the new firm or structure you choose?
Think about the future and try to understand who you want to work for in the next 10 to 15 years: a firm, your own firm, or clients? Your current clients or those who take the step with you (and truly value you)? New clients, markets, team, or strategic alliances?
The feeling that is generated when a partner or client accompanies you is tremendous and generous; they are there for you, just as you have been there for them… and naturally, you will take care of them, their children, and referrals.
It would be expected that the relationships built on years of effort and hard work surpass temporary separations of months (due to compliance with protocols and sector-specific rules).
According to a Wealth-X report, high net worth clients often follow their investment advisors when they decide to switch firms. This is due to the trust and experience that they have developed with their advisor over the years. The report also highlights that client loyalty to the investment advisor outweighs loyalty to the firm itself. Additionally, a survey conducted by PwC reveals that 64% of high-net-worth clients consider the personal relationship with their financial advisor as an important factor when choosing a wealth management firm.
Speaking of motivation, if one is recognized in the industry, besides choosing wisely and going where one feels better, you can “capitalize” on the change, and the work is very well rewarded…
A very personal article, as a Portfolio Manager, a market researcher, and with my own convictions… the same beliefs that led me to enter 2022 with over 30% of my clients’ USD 500 million in cash because I anticipated interest rate hikes and cash along with a small proportion in alternative investments (properties) was the only thing that could protect them.
And, as someone dedicated to my clients, recognized by Forbes, Working Mother, Women We Admire-Miami, and even being congratulated in Times Square… now, anticipating the events and adapting to the new reality, I have stepped out of my comfort zone to search, compare, and find the best place for my clients, a “boutique-style within one of the best capitalized financial institutions in USA with extensive resources,” or as my clients say, “we went from Rolex to Patek Philippe.”
Therefore, considering the question “should I stay, or should I go?”, and in order to grow, check the following points:
- The significant growth in wealth management by boutique firms, as indicated in the Wealth-X report, also highlights that boutique firms have been successful in attracting high-profile clients such as successful business owners, institutional investors, and affluent families. This is due to their ability to quickly adapt to the changing needs of these clients, offering tailored solutions and high-quality personalized service, particularly in markets emerging and growing economies.
- The increasing demand for online financial services and mobile applications by clients.
- The increase in investment in North American firms. Additionally, the importance of understanding tax and legal regulations in both countries and properly preserving money in an efficient tax structure.
- The search for estate planning services and investment in real estate in the United States.
- Clients’ preference for responsible investment and strong personal relationships based on trust and tailored to cultural needs.
- And, I will share my thoughts on strategy at this moment: position your cash… remember that in the last two decades there have only been high interest rates a couple of times, and therefore, considering the decrease in inflation, among many other variables, I believe that interest rates will decrease in the coming years; based on that, I suggest increasing the fixed income investments in your portfolio’s asset allocation, targeting yields of at least 5% with a conservative mix of securities such as fixed-term deposits – CDs (FDIC-insured certificates of deposit), as well as investment-grade bonds. It’s also time to extend the duration and increase maturities to maintain high cash flows and potential appreciation (you can stagger maturities for liquidity if needed). For additional income, growth, and currency diversification, consider including funds & ETFs (Exchange Traded Funds), which for emerging markets (bonds and stocks) are a good way to better protect principal, thanks to diversification and tax efficiency – at least, ‘offshore’ offer to international clients.
In conclusion, taking into account these considerations supported by reliable reports and sources, remember the words of Warren Buffett: ‘It takes 20 years to build a reputation and only 5 minutes to ruin it,’ as it will help you make the right decision.
Whether it’s staying with your current firm, moving to another firm, becoming independent, changing sectors, or even taking a break or retiring… It’s time to make that decision with courage, conviction, and triumph. Keep soaring high and enjoy the journey while continuing to be the best version of yourself.
Wishing you great success on your path!
Eva Marina Ovejero, Managing Director at Alex. Brown, a Division of Raymond James
Any opinions are those of Eva Marina Ovejero and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results.
For Marcelo Soba