RICH PICKINGS: Suspicious times

The post-GFC climate has spawned a new breed of rich-listers who are doing due diligence on everything, from financial products to luxury yachts.

Another week, another list confirming that the rich have all but shrugged off the worst of the GFC.

Just a few weeks after the Forbes list of the world's billionaires showed the total wealth of the ultra rich has leapt from $US2.4 trillion to $US3.6 trillion, the British rich list compiled by the Sunday Times newspaper has provided further evidence of the strong recovery, showing total wealth rose 30 per cent, the biggest jump in 22 years.

Not only have the rich seen the bank balances rebound, but there are also signs that they are starting to open their wallets too. In the last few weeks, luxury goods companies LVMH and Burberry have both surprised the market with better than expected first quarter sales results, while research company Bain & Company forecast a 4 per cent increase in global luxury sales in 2010 to $US214 billion – far better than last year's 8 per cent fall in luxury sales.

So the rich are spending once again, which is news that will thrill sales and marketing executives around the world. But of course, reaching wealthy customers has always been an extraordinarily difficult task.

And the bad news is that recent research suggests the rich have become even more suspicious, impatient and demanding than before the crisis.

It's a trend particularly noticeable in financial services, according to Paul Brady, a financial adviser who works with high-net worth individuals. He noticed a distinct change in attitude among clients as the GFC took hold, with normally hands-off clients suddenly becoming very hands on, as the value of the portfolio took a hit.

"People feel far more strongly about losing a dollar than making a dollar," Brady says. "I would say post that very volatile and weak period there has been a higher level of engagement, of trying to understand things more. As things have improved the level of confidence, comfort and trust gradually building again. But it was such a traumatic period for everybody that that's got some distance to run."

That demand for more information, greater transparency and more control isn't just being felt at the top end of the financial services world. From luxury boat makers through to suppliers of high-end building products, those selling products to the rich are finding customers doing due diligence on everything.

"They want to be comfortable and know they are dealing with someone who is secure," says one luxury entrepreneur. "They especially want to make sure you are going to be around for the long haul."

This trend towards greater due diligence and a demand for transparency is supported by a recent report prepared by the Economist Intelligence Unit for Societe Generale Private Banking, which examines the trends amongst the wealthy in terms of investing, spending and giving.

The report, based on 24 interviews with wealthy investors with over $US30 million in investable assets (that is, not including the family home), suggests that the GFC has left the rich feeling much less trusting than they were two years ago.

Here are a few of the key trends:

1. "The financial crisis has led to a trust crisis between ultra high net worth individuals and investment experts."

A shift in trend towards more due diligence and a more hands-on role in the buying process is particularly noticeable in the financial services sector, according to the report. Stung by scandals such as that involving Bernie Madoff and the collapse of banks around the world, the rich are asking more questions, doing more research and demanding to know about conflicts of interest. The lesson is simple – anyone selling anything to the rich needs impeccable bona fides and a strong track record.

2. "When it comes to where the very wealthy are investing their money, the pendulum has swung from extreme complexity, such as hedge funds and derivatives, to extreme simplicity, such as cash."

While this trend relates specifically to financial services – where complex financial arrangements and leverage brought many entrepreneurs undone – there are wider implications for any product or service aimed at the premium end of the market. Make it simple to understand, make the benefits clear, make it easy for them to compare with other products and make it easy to track if an ongoing services is involved.

3. "The so-called new austerity does not apply to the very wealthy. They will continue to spend much the same amount as they did before the downturn, but they will be less flagrant."

The trend towards inconspicuous consumption is one that luxury goods sellers have tracked over the last 18 months, particularly in the European and North American markets where being seen as flamboyantly rich in economies were unemployment is rife is clearly frowned upon. But the general trend towards trading down from the flashiest goods is one Australia has seen evidence of, too. Take the luxury boat sector for example, where 10 boat builders have collapsed in the last two years as demand has dried up. While the ultra rich can still afford to buy, the entrepreneurs on the next rung down have lowered their sights, typically halving their pre-GFC spend. Remember, the rich love value, too, and are prepared to bargain hard to get it.

4. The very wealthy want luxury goods companies to sell them a quality service and "something that feels special", over and above the exclusive price tag.

The Economist Intelligence Unit says this is a trend that was emerging before the GFC but has since become more pronounced. Basically, it means businesses need to work harder to service wealthy customers. This might involve greater customisation of products, more related customer services and an even more exclusive feel to products and services, perhaps through one-off deals. Married with the trend towards inconspicuous consumption, it suggests those selling to the rich should particularly focus on a style of customer service where privacy or confidentiality is highlighted.

These trends provide some insights into what the rich are looking for out of the products and services they purchase. But what about the selling strategies that work best?

Clearly, every prospect requires an individual approach, given a rich-lister's personal needs and circumstances. Some wealth customers will want every scrap of detail and information they can soak up; others will want a more big-picture summary.

But according to Brady, what links every affluent client is the one thing they can never buy: time. "Some people tend to think the rich are looking for all the bells and whistles, but I think for many people, they've got a big and busy agenda and they are time poor," Brady says. "For many it's crucial to find someone who they can trust and who can distil a wide range of information to suit their needs."

If you can actually give time back to rich clients, all the better. In Brady's case, this means that he takes responsibility for handling part of his client's affairs, chasing them up when necessary, and generally becoming what he describes as their "personal chief financial officer".

"There's a lot of value they attach to the importance of keeping things on track."

It's good advice, but it's also an indication of how much work is required to win and retain affluent customers. It's hard going, and after the GFC it's likely to get harder.

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