For all financial and legal professionals, the wealthy, defined as individuals and families with a net worth of US $10 million or more, are their “ideal” clients. The wealthy have the monies and the motivation to pay for high-quality expertise. They can also provide these professionals with referrals to wealthy individuals and families.
For decades, based on their actions, the wealthy were—more than not—comfortable with the fees they were charged. That is, they were told the percentage of their portfolio that is the investment management fee or the hourly rate of a trusts and estates lawyer, and, if they did not like the numbers, they would rarely shop around. If the wealthy did shop around, they would often find the price for these services among professionals comparable.
In contrast, a large percentage of the super-rich who have a net worth of US $500 million or more have always been inclined to negotiate professional fees when it came to their businesses and when it came to their personal lives. Senior executives in their high-performing single-family offices are skilled at bargaining with lawyers, accountants, money managers and providers.
According to Homer Smith, founder of Konvergent Wealth Partners, and co-author of Making Smart Decisions: How Ultra-Wealth Families Get Superior Wealth Planning Results, “The wealthy looking at the best practices of the super-rich and their single-family offices are looking to duplicate the benefits they get by negotiating with the professionals they hire. Many wealthy understand they have leverage when they hire wealth managers, private client lawyers, and high-net-worth accountants. They, therefore, want to use this leverage to ensure a better working arrangement, lower fees, or both.”
The fact that more and more of the wealthy, like many of the super-rich, will negotiate is an advantage to leading financial and legal professionals. It is another way for these experts to effectively differentiate themselves from the plethora of pretenders and predators circling the wealthy.
Most of the time, the wealthy get a better deal, and the professionals get significant loyal clients and substantial revenues. Sometimes, the wealthy get a better deal, and the professionals end up with much more expansive and profitable engagements. Both these scenarios are very much dependent on the professionals’ abilities to negotiate and communicate the exceptional value they can provide. The complication is that today, a large percentage of technically proficient professionals are not proficient when it comes to either negotiating with the wealthy or explaining their value.
Many of these professionals cannot provide common-sense explanations for their fee structures. For example, few can give viable answers when asking wealth managers why the breakpoints in their investment management fee schedules are where they are. Many trusts and estates lawyers and high-net-worth accountants “freeze” when questioned about the rationale for their hourly rates.
“Those technically capable professionals who can intelligently discuss their fees and the value they deliver will be the ones who will excel with the wealthy—who are becoming more astute in these matters,” says Smith. “Professionals who might be great at what they do will not be able to compete as the wealthy know who’s in charge.”
Talented, capable professionals whose practices focus on the wealthy need to know that negotiating working arrangements and fees are becoming increasingly normative. These professionals can grow a loyal and profitable clientele by understanding what the wealthy are looking for, including the questions they are likely to ask.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.