North America is still number one.
The region was home to the largest number of high net worth individuals (HNWIs) globally in 2018, standing at just over 9.1 million, according to Wealth-X’s High Net Worth Handbook 2019.
While the US alone was the top destination for HNWIs (8.67 million) and total wealth ($22.68trn) (£17.22trn, €20trn) in 2018.
With such high numbers, there are plenty of clients who need financial advice.
“It’s a tremendous market, if done properly,” Edward Harris, founder and chief executive of adviser firm Stone Eagle Investments, told International Adviser. “There is considerable wealth here and clients are looking for new approaches to managing their money.
“But you need to have a clear plan, and work with people who are committed to, and understand, the US regulatory processes.”
But just how do you make it in the US adviser market?
Straightforward
Harris added: “People are sometimes surprised at how low the capital requirements are to open an investment adviser business in the USA.
“That is not the difficulty. The challenge is knowing how to go about it, finding the right partners, and getting sufficiently qualified.
“That is time consuming and the penalties for getting it wrong can be severe, so there is no substitute for knowing what you are doing.
“Once you have the license and the right partners, scaling up your business is very straightforward. The adviser market is huge in the USA, so there are plenty of experienced service providers around to leverage.”
Having the right ethos
Being a financial adviser is about giving good advice, but if you can’t attract clients then you cannot grow your business.
Kevin Neal, founder of Moenio Consulting, which guides financial advisers and teams to win high net worth clients, said to IA: “There are four things that you need to look at as a client.
“One – you need to make sure the adviser is structured and has a solid background.
“Two – the firm needs to be checked to make sure it has a good platform, eg investments and reporting, and good regulatory record.
“Three – look at the firm’s past history of investments.
“Four – see how the firms communicate with their clients, what sort of approach with financial planning do they take.”
These tips are a good place to start, and are something for companies to bear in mind when evidencing to clients that they are the right firm for them.
Following this, Neal said there are two ways to grow business in the US.
“One, you have money and you build up from the ground level with the licence,” said Neal. “Second, you team up with another adviser and they help you.
“For the first one, the rate of success is less than 10%. So, the firms can hire a load of people, but they’ll be lucky if they succeed. It is a very difficult process to get these people to be successful.”
Adviser and client struggles
But growth shouldn’t always be top of the agenda for financial advisers.
Sometimes financial planning matters must take precedence especially since, according to Neal, advisers are not always on the right track when it comes to dealing with clients.
He described a recent scenario where an advisory team had put together a five-year investment plan for a client but didn’t monitor it. When it came to the end of the plan, it was completely off target.
Neal said: “What I wrote recently in my intelligence report for advisers, is you have to look at the financial plan that was done at the start, look back what you had planned and forecast because you may not be on the right track.”
However, it is not always the advisers that are suffering with financial planning woes.
In the UK, for example, clients are suffering with issues surrounding pensions, inheritance tax and retirement.
But what is keeping clients in the US up at night?
Harris added: “My clients tend to have already accumulated sizeable wealth. The challenge is to get a reasonable return for their relatively low risk profile, when most asset classes seem expensive and the economy is late in the cycle.
“Patience is key and communicating this with clients is important.
“Pensions (or lack thereof) is certainly important, but debt dominates discussions here. Student debt is at record levels, as is auto loan debts and a host of others, including corporate and government debt.”
Finding your niche
But it is not all doom and gloom.
Despite how hard it is breaking into the US adviser market, some advice firms see the positives of the US and are eager to make their brand synonymous with the sector.
UK-based wealth manager Kingswood recently hired Najib Canaan as US chief executive in a bid to offer its investment products to the states.
As a way of identifying a unique selling point to clients, Gary Wilder, chief executive of the Kingswood group, told IA that his firm can offer something rarely accessible for US retail investors – which is bringing institutional quality investment products to the under-served mass affluent and private client segment.
Wilder said there was “high demand for independently managed, low risk, investment grade products in this low interest rate environment”.
These products offer “high levels of capital protection and recurring regular and higher yields than regular cash deposits and fixed income investments, with differing liquidity across all asset classes, which the mass affluent investor and private client currently have no access to,” he added.
Neal admitted products like these could be interesting to clients, who looking for advisers to be thinking “outside the box when it comes to investing”.
Every six months there is a different mindset. If you are dealing with the wealthy clients, they want two things,” he said.
“They want great service, which is active not reactive.
“Second, they want a thoughtful approach around investing, they do not want standard allocation.
“They don’t want someone saying 60% to 40% and then building a portfolio. They want something more.
“They want advisers to recognise their behaviours. Advisers will typically say ‘stay the course’, but what they’re looking for is someone who says I recognise your concerns and look to address issues like volatility.
“They want advisers to be insightful to understand them. It’s all about the emotion.”
High M&A demand across the Atlantic
After coming up with the unique selling point of the business, the next buzz word is growth.
Across the world, the wealth management and financial adviser market has been hit by a mergers and acquisitions frenzy, which seems to also be prominent in the US, especially with the likes of Focus Financial.
Kingswood’s newly-hired US chief executive Canaan told IA that the firm’s development will come from a combination of “organic growth” and “acquisitions”.
He added: “We are looking at our first investment in the US. The acquisition market in the US is active.”
But why is M&A so strong in the US adviser market ?
Neal said: “The mergers and acquisitions that you see in the US are more on the registered investment adviser (RIA) side because it’s about scale.
“Wealth manager firms are building super teams. They are looking at people who are entrepreneurial but they’re inside the firm, and the wealth manager is looking to see if they can maybe attract new people to grow their business.
“Wealth manager firms are reacting to what the RIA industry is doing. The M&A is from a scale standpoint.
“Firms are thinking, if they can get a great service and a great process then I can attract more clients but also good advisers.”
Springboard
Kingswood may be looking to get into the US market – but it also sees the move as a chance to gain ground in the wealth management sector globally.
Wilder said: “For example, we see the opportunity, when we eventually put our Asian foundations down, to provide US expats in Singapore and around those markets access to US-based investment products and services through the Kingswood network.
“We fundamentally believe and are passionate about creating the first global listed integrated wealth and investment management platform that can service the mass affluent and private client cohort globally.
“We want to bring a range of products wherever they may be.”
