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March 31, 2009


High-net-worth individuals represent the smallest but fastest growing client type. Individual wealth creation and financial sophistication over the past decade has driven asset managers to focus heavily in this area. Despite the success of many large asset management firms in the area, the firms that specialize in high net worth clients, such as Bessemer Trust and Pell Rudman, remain the leaders in this business.

What is high net?

What is a high-net-worth investor? Definitions differ, but a good rule of thumb is an individual with minimum asset portfolios of $5 to $10 million. These investors are typically taxable (like mutual funds, but unlike institutional investors), but their portfolio accounts are managed separately (unlike mutual funds, but like institutions).

High-net-worth investors also require high levels of client service (read: hand-holding). Those considering entering this side of the market should be prepared to be as interested in client relationship management as in portfolio management, although the full force of client relations is borne not by a portfolio manager but a sell-side salesperson in a firm's Private Client Services (PCS) division. Says one investment manager about PCS sales, "If [clients] tell them they're out of paper towels, they'll probably go to their houses and bring them [paper towels]." (For more information about lucrative PCS career opportunities, see the Vault Career Guide to Investment Banking.)

In reality, there are two classes of high-net-worth clients: those in the $2 million and above range, and those in the $500,000 to $2 million range. Those with $2 million and above to invest receive customized and separately managed portfolios, while those in the $500,000 to $2 million arena do not. This second class does receive much more personal attention from their PCS salesperson than they would from a traditional retail broker. But, unlike the $2 million and above range people, this second group's portfolio management is derived from cookie cutter products and strategies. Still, this service is performed by a portfolio manager devoted to high-net-worth clients, and assets aren't actually lumped into a large fund as they would be in a mutual fund.

High-net-worth investors also often use the institutions that manage their assets for other financial services, such as estate planning or tax work.

Clients and consultants

An investment management firm's relationship management sales force typically sells high-net-worth services in one of two ways: either directly to wealthy individuals, or to third parties called investment consultants who work for wealthy individuals. The first method is fairly straightforward. An investment manager's sales force, the PCS unit, pitches services directly to the individuals with the money. In the second method, a firm's internal sales force does not directly pitch those with the money, but rather pitches representatives, often called investment consultants, of high-net-worth clients. In general, investment consultants play a much smaller role in the high-net-worth area than the institutional side; only extremely wealthy individuals will enlist investment consultant firms to help them decide which investment manager to go with.


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