Private Asset Management
PAM
PROFILE
X marks the spot David Friedman is one half of the team behind Wealth-X, the private wealth industry’s go-to source for intel on the world’s affluent population. Here, he tells PAM about the mistakes advisors make during lead generation, and how data could impact every par t of the advisor-client relationship BY STEPHANIE BARTUP
16
I
t was six years ago, over coffee at Le Pain Quotidian that David Friedman and his co-founder, Mykolas Rambus, decided to launch a company that would offer robust intelligence on the world’s wealthiest individuals. “Mykolas came up with the idea for Wealth-X while he was chief information officer at Forbes,” explains Freidman. In the wake of the financial crisis, advertising revenues were collapsing and Forbes, like most media companies were looking for ways to diversify away from advertising driven revenues to more subscription-based annualized revenue sources, he adds. “After spending a year doing due diligence on the traditional data sets that [existed], [we found] they all used the category of ‘average annual household income’ as the lens by which to view sales and marketing strategies.” This, says Friedman, had brought to existence a marketplace where targeting and reaching ultrahigh-net-worth individuals (UHNWIs), defined by Wealth-X as those with a net worth of at least $30m, was ‘broken and inefficient’. “We quickly came to the conclusion that the reason these individuals’ [information] had been missing from previous databases was that since a majority of their wealth was privately held, identifying and profiling them using models and technology was practically impossible,” explains Friedman. “The great epiphany we had was that to build this data asset, we would have to build an intelligence apparatus from human capital that would scour thousands of sources in the open source domain and then manually craft a dossier that captured the key elements of that individual’s life narrative.” The pair began building their intelligence asset almost six years ago and have grown to recruit
more than 170 researchers covering 160 countries, distilling relevant information for data guides spanning private banks, jet manufacturers, Ivy League schools, non-profits and luxury brands. CHANGING STRUCTURES Friedman has seen many evolutions in the private wealth space during his time in the business (prior to the founding of Wealth-X, he worked and consulted in the single family office space). One of the most interesting, he says, is the growing inclination of families to avoid traditional investment structures and frameworks and go direct, having been ‘stung by opaque structures in the collapse of 2008 and fees for underperforming managers, combined with the acute gyrations in the equity markets’. Private banking entities have been among those feeling some level of upheaval to the way its advisors work, adds Friedman. “Prior to the financial crisis in 2008-9, [private bankers] were just sitting at their phones raking in the referrals, [but] not one head of those institutions today will ever rely on that strategy for growth again,” he says. “They all recognize that they need a disciplined and systematic approach to growth regardless of how well their business is doing today.”
I PREDICT WE WILL SEE A LARGE WAVE OF INVESTMENT AROUND DISTRESSED ASSETS OVER THE NEXT TWO TO THREE YEARS AS THE TIME WILL BE RIPE AND OPPORTUNITY SUBSTANTIAL FOR THOSE WITH ‘DRY POWDER’
APRIL 2016
The economic crisis revealed those who did and did not have strategies for actively growing outside of acquisition of advisors, says Friedman, and showed that many failed to have an organic strategy for growth. Today, one of the biggest value propositions for the larger banking and brokerages houses remains their ability to provide proprietary deal flow as a result of their capital marketing and investment banking platforms, he suggests: “To many of the ultra-wealthy, product and platform, and even brand to some extent are commoditized, but access to deal flow remains extremely important.” “Since many family offices have been sitting their cash on the sidelines, I predict we will see a large wave of investment around distressed assets over the next two to three years as the time will be ripe and opportunity substantial for those with ‘dry powder’.” A major trend among global luxury brands has been a pivot towards what is becoming known as ‘the new emerging market’, says Friedman; the US Midwest and Texas. “On the ranking of top 10 cities in the world based on number of UHNW individuals, Chicago is surprisingly number nine,” he notes. “Most people and advisors would not guess this.” TIME TO STRATEGIZE When it comes to seeking out new clients, Friedman says ‘everyone makes the same mistake’ by starting from the outside in; he says some advisors will ask him for a list of the wealthiest people in Houston, for example, in a bid to get in contact with them. “The reality is that you will never reach them [with this strategy] and while a list of the wealthiest people may scratch a psychological itch that you have [to generate] leads for yourself or your sales team, it’s a hollow hope that will fail,” he says. “We all know that cold calling does not work in general and with the UHNW [demographic] the failure rate is compounded.” Friedman points to data which suggests that more than 99% of advisors’ new ultra-wealthy clients come from referrals from one of two places; either existing clients or centers-of-influence, such as accountants and attorneys. Several issues can arise from requesting client referrals, he says, but the biggest mistake is making an existing client do all the work. “Never make your client do your work,” he warns. “Second, your client is busy and even if they want to help you, their typical response is, “Sure, let me think about it and get back to you.” And shockingly, they never do.” The more specific you are in giving someone a task they can execute upon, the higher probability you have in getting the referral. Friedman suggests asking for an introduction to a specific board member, or group, which may be of interest.
“Advisors need to treat their clients’ social capital like another asset class they are trying to manage,” he adds. One of Wealth-X’s most recent product launches aims to fix this broken client referral process; their Future Client Strategy function segments the social graph of Wealth-X’s clients’ key relationships, then their clients by net-worth and affinity, enabling advisors to create targeted marketing approaches to engage specific individuals through their existing network. “Our largest clients scale this approach across their sales team and institution by integrating our data directly into the CRM system,” Friedman explains. “Our online platform including our mobile app automatically generates this map and referral network as soon as our clients start ‘tagging’ prospects in our database as ‘favorites’.” GROWING INTELLIGENCE Over the past few years, Wealth-X has partnered with the leaders in various sectors of financial services, luxury and non-profit to create reports such as the Billionaire Census, World Ultra Wealth Report, Luxury Real Estate and Philanthropy Reports. Friedman’s next topic target is cyber and physical security for the ultra-wealthy. “We see this is an emerging topic that is dominating the mindshare of this group,” he explains. “We are in discussions for such report but have not finalized the partnership yet.” Looking at Wealth-X’s future potential, Friedman says he believes that there will be a day “where not one major investment, major donation or large luxury purchase is not in some way touched by or directed by our intelligence as part of the process”, and says he sees combining data resources as the key to further success. “How various industries [currently] leverage our data from an analytical standpoint is not even an atom of the tip of the iceberg,” he says. “Using our data combined with our clients data to create predictive analytic models will be the future combined with our ability to do due diligence offering a prescreening anti-money laundering/ you’re your client (AML/KYC) compliant lead, will truly be revolutionary as risks associated with these individuals continue to escalate.” His ultimate vision for Wealth-X is offering an efficient data marketplace, where UHNW individuals only receive offers and engagements with partners which are mapped to their passions, hobbies and interests, rather than being invited to an ‘endless parade of every bank’s, luxury brand’s and non-profits’ special VIP events’, he says. This end-goal – pioneering a relevant and comprehensive data set – ties in with the way that much of the private wealth industry is leaning, in fee structures, investment techniques and fiduciary practices - keeping the advisor in the passenger seat, but giving the client the ultimate control.
17
PROFILE
X marks the spot David Friedman is one half of the team behind Wealth-X, the private wealth industry’s go-to source for intel on the world’s affluent population. Here, he tells PAM about the mistakes advisors make during lead generation, and how data could impact every par t of the advisor-client relationship BY STEPHANIE BARTUP
16
I
t was six years ago, over coffee at Le Pain Quotidian that David Friedman and his co-founder, Mykolas Rambus, decided to launch a company that would offer robust intelligence on the world’s wealthiest individuals. “Mykolas came up with the idea for Wealth-X while he was chief information officer at Forbes,” explains Freidman. In the wake of the financial crisis, advertising revenues were collapsing and Forbes, like most media companies were looking for ways to diversify away from advertising driven revenues to more subscription-based annualized revenue sources, he adds. “After spending a year doing due diligence on the traditional data sets that [existed], [we found] they all used the category of ‘average annual household income’ as the lens by which to view sales and marketing strategies.” This, says Friedman, had brought to existence a marketplace where targeting and reaching ultrahigh-net-worth individuals (UHNWIs), defined by Wealth-X as those with a net worth of at least $30m, was ‘broken and inefficient’. “We quickly came to the conclusion that the reason these individuals’ [information] had been missing from previous databases was that since a majority of their wealth was privately held, identifying and profiling them using models and technology was practically impossible,” explains Friedman. “The great epiphany we had was that to build this data asset, we would have to build an intelligence apparatus from human capital that would scour thousands of sources in the open source domain and then manually craft a dossier that captured the key elements of that individual’s life narrative.” The pair began building their intelligence asset almost six years ago and have grown to recruit
more than 170 researchers covering 160 countries, distilling relevant information for data guides spanning private banks, jet manufacturers, Ivy League schools, non-profits and luxury brands. CHANGING STRUCTURES Friedman has seen many evolutions in the private wealth space during his time in the business (prior to the founding of Wealth-X, he worked and consulted in the single family office space). One of the most interesting, he says, is the growing inclination of families to avoid traditional investment structures and frameworks and go direct, having been ‘stung by opaque structures in the collapse of 2008 and fees for underperforming managers, combined with the acute gyrations in the equity markets’. Private banking entities have been among those feeling some level of upheaval to the way its advisors work, adds Friedman. “Prior to the financial crisis in 2008-9, [private bankers] were just sitting at their phones raking in the referrals, [but] not one head of those institutions today will ever rely on that strategy for growth again,” he says. “They all recognize that they need a disciplined and systematic approach to growth regardless of how well their business is doing today.”
I PREDICT WE WILL SEE A LARGE WAVE OF INVESTMENT AROUND DISTRESSED ASSETS OVER THE NEXT TWO TO THREE YEARS AS THE TIME WILL BE RIPE AND OPPORTUNITY SUBSTANTIAL FOR THOSE WITH ‘DRY POWDER’
APRIL 2016
The economic crisis revealed those who did and did not have strategies for actively growing outside of acquisition of advisors, says Friedman, and showed that many failed to have an organic strategy for growth. Today, one of the biggest value propositions for the larger banking and brokerages houses remains their ability to provide proprietary deal flow as a result of their capital marketing and investment banking platforms, he suggests: “To many of the ultra-wealthy, product and platform, and even brand to some extent are commoditized, but access to deal flow remains extremely important.” “Since many family offices have been sitting their cash on the sidelines, I predict we will see a large wave of investment around distressed assets over the next two to three years as the time will be ripe and opportunity substantial for those with ‘dry powder’.” A major trend among global luxury brands has been a pivot towards what is becoming known as ‘the new emerging market’, says Friedman; the US Midwest and Texas. “On the ranking of top 10 cities in the world based on number of UHNW individuals, Chicago is surprisingly number nine,” he notes. “Most people and advisors would not guess this.” TIME TO STRATEGIZE When it comes to seeking out new clients, Friedman says ‘everyone makes the same mistake’ by starting from the outside in; he says some advisors will ask him for a list of the wealthiest people in Houston, for example, in a bid to get in contact with them. “The reality is that you will never reach them [with this strategy] and while a list of the wealthiest people may scratch a psychological itch that you have [to generate] leads for yourself or your sales team, it’s a hollow hope that will fail,” he says. “We all know that cold calling does not work in general and with the UHNW [demographic] the failure rate is compounded.” Friedman points to data which suggests that more than 99% of advisors’ new ultra-wealthy clients come from referrals from one of two places; either existing clients or centers-of-influence, such as accountants and attorneys. Several issues can arise from requesting client referrals, he says, but the biggest mistake is making an existing client do all the work. “Never make your client do your work,” he warns. “Second, your client is busy and even if they want to help you, their typical response is, “Sure, let me think about it and get back to you.” And shockingly, they never do.” The more specific you are in giving someone a task they can execute upon, the higher probability you have in getting the referral. Friedman suggests asking for an introduction to a specific board member, or group, which may be of interest.
“Advisors need to treat their clients’ social capital like another asset class they are trying to manage,” he adds. One of Wealth-X’s most recent product launches aims to fix this broken client referral process; their Future Client Strategy function segments the social graph of Wealth-X’s clients’ key relationships, then their clients by net-worth and affinity, enabling advisors to create targeted marketing approaches to engage specific individuals through their existing network. “Our largest clients scale this approach across their sales team and institution by integrating our data directly into the CRM system,” Friedman explains. “Our online platform including our mobile app automatically generates this map and referral network as soon as our clients start ‘tagging’ prospects in our database as ‘favorites’.” GROWING INTELLIGENCE Over the past few years, Wealth-X has partnered with the leaders in various sectors of financial services, luxury and non-profit to create reports such as the Billionaire Census, World Ultra Wealth Report, Luxury Real Estate and Philanthropy Reports. Friedman’s next topic target is cyber and physical security for the ultra-wealthy. “We see this is an emerging topic that is dominating the mindshare of this group,” he explains. “We are in discussions for such report but have not finalized the partnership yet.” Looking at Wealth-X’s future potential, Friedman says he believes that there will be a day “where not one major investment, major donation or large luxury purchase is not in some way touched by or directed by our intelligence as part of the process”, and says he sees combining data resources as the key to further success. “How various industries [currently] leverage our data from an analytical standpoint is not even an atom of the tip of the iceberg,” he says. “Using our data combined with our clients data to create predictive analytic models will be the future combined with our ability to do due diligence offering a prescreening anti-money laundering/ you’re your client (AML/KYC) compliant lead, will truly be revolutionary as risks associated with these individuals continue to escalate.” His ultimate vision for Wealth-X is offering an efficient data marketplace, where UHNW individuals only receive offers and engagements with partners which are mapped to their passions, hobbies and interests, rather than being invited to an ‘endless parade of every bank’s, luxury brand’s and non-profits’ special VIP events’, he says. This end-goal – pioneering a relevant and comprehensive data set – ties in with the way that much of the private wealth industry is leaning, in fee structures, investment techniques and fiduciary practices - keeping the advisor in the passenger seat, but giving the client the ultimate control.
17
