Are private client services luxury goods, insurance, tax advice, accounting, succession advice, litigation, tax investigation?
A ‘luxury good’ in economic terms means if income goes up by 1% demand goes up by 2%. This compares to a necessity good where demand increases proportionately less than income.
But I struggle with the word ‘luxury’ in this context. Luxury is defined as having great comfort or elegance at great expense.
When J.K. Rowling the author of a boy wizard story about Harry Potter, first came into wealth she is on record as saying she was terrified. This does not sound like someone who is about to indulge in a luxury purchase.
Private client services may come within the definition of luxury goods in economic terms but for people who have wealth, private client services are more like a necessity.
For people like J.K. Rowling when faced with significant wealth engaging an investment manager does not feel like a luxury but more like a necessity - they must do something with the money – but they do know who to trust and research indicates that most lose up to one third of their wealth in the first five years. They make mistakes, fall foul of swindlers, opportunistic litigation, tax investigations and the like.
Then of course there is the language. I had a client QB who said to me when he first came into wealth that he did not know what anyone was saying. He felt intimated by well-dressed bankers in fancy offices and had not a clue what their services would cost him!
On another occasion I went with a client to a litigation lawyer. We spent the meeting going through the facts and processes and I was pleased with the progress made.
After the meeting I asked my client what he thought of the meeting, he said ‘I did not understand a word!!!’
In 2016 Trusted Review carried out a research into the emotional context behind a purchase – which includes engaging a private client professional.
First there is the distress purchase. J.K. Rowling got her first cheque and panicked, I have seen this reaction on many occasions, on an inheritance or the sale of a business, this syndrome in my book ‘Reimagining the role of the Private Client Industry’ post lockdown I call the adjustment from ‘mortgages to management’.
The research revealed that in cases like this the purchaser needs an anchor, someone they can turn to who will guide them safely. Often, they turn to a friend – because they do not know any private client professional well enough to go for a recommendation – this is a sad indictment of our industry and can be remedied very easily with a Culture of Care
David and I were the trustees of a trust of whom Mrs T was the life tenant. He was an investment manager and I a lawyer. Once a year we would meet with Mrs T, David would tell us how well her portfolio had performed, and I would make sure we knew the family circumstances so could advise appropriately. She always came back to either David or me when an issue or opportunity arose – this is what I call a Culture of Care in operation.
The other type of purchase according to the 2016 research is the emotional purchase when someone wants to upgrade their service provider or product. In this situation 95% of people check online before deciding and 85% (like my daughter) will check out reviews before buying
The wealth management industry has been going through a transformation with the use of digital technology designed to replace human cost with a computer. This is a typical example of an emotional incentive to switch investment managers.
Robo advisors employ automated portfolio management based on computer generated algorithms. It’s an online service and thus eliminates the need or cost of a human advisor.
However, from my experience of working with clients, the human touch is still essential. The computer is needed to digest large amounts of data, but the client also needs a human financial advisor to care for their wider needs and concerns to provide reassurance and an anchor in times of need.
It is therefore important to cover both if you are to be a successful private client professional post lock down.
You need to build trust with your clients so that they will come to you in times of need but also make sure a prospective client come to you if they want to upgrade their service provider. The key to this is ‘story telling’ according to the 2016 research.
Caroline’s Club recognises this need post lockdown. A few weeks ago, I sat down with Charles Garland to carefully craft a personal interview podcast for him to share with his clients, contacts, and colleagues which we uploaded alongside his profile on our platform. This interview spreads the word about what Charles does for his clients but also reassures those eager to save money on Foreign Exchange Deals to use his services.