It’s hard to argue with the idea that wealth managers need to stay close to wealth creators. However, as Randy Webb, president and chief executive of Signature, points out to Family Wealth Report, the term “new wealth” can be misleading.

After a recent Fidelity survey showed that 85 per cent of millionaires count themselves as “self-made,” it’s hard to argue with the idea that wealth managers need to stay close to wealth creators. And one firm that seems to have no trouble working with wealth creators is Signature, with 85 per cent of its client base made up of first-generation wealth.

However, as Randy Webb, president and chief executive of Signature, points out to Family Wealth Report, the term “new wealth” can be misleading.

“New wealth is not new,  entrepreneurs have been creating new wealth and liquidity around the creation of enterprise value for as long as we’ve been building businesses… It’s fascinating to me how often the idea of new wealth comes up as a new concept,” he says.

As such, Webb more often talks about “new wealth” in more accurate terms such as “new liquidity.” While this may take away some of the mystique of sudden riches, it perhaps more accurately portrays the challenges that come with them. And when looked at in this light, the needs of the “newly wealthy” become more apparent.

The business of wealth

“If you think about someone who’s been a successful entrepreneur it likely has been in a segment where their passion and their focus created the success…and then the liquidity created by a transaction forces them to take that passion and focus and turn it toward something (the capital markets) that by their nature requires you to be great at a lot of things,” says Webb.

“That looks pretty daunting to people,” he says. “It’s really just a transition from a number on a balance sheet to a number on a checking account that we’re involved in.”

Likewise, it’s a transfer of specific complexity – that pertaining to a business – to complexity that comes in many forms: investment management, estate planning, philanthropy, tax management, to name but a few.

At that point, creating some clarity for the client on their new business – of money – and translating the new challenges they face into terms they are familiar with could be key.

“One of the things we talk about at Signature is that we’re in the business of wealth management,” says Webb. “So many of our clients come to us from the success of a business strategy and what we do, or attempt to do, is really take that liquidity that’s created…and build the same level of strategic thinking, the same levels of goals and objectives, and of management against those goals and objectives, into how they think about their liquidity.

“You’re still very close to the sacrifices and strategic choices that created the liquidity, and that really drives our relationships in a different way, toward what you would really look at as a more business-level conversation, based around clarity of a balance sheet, clarity of cash flow, and income statement for that family,” he adds.

Getting access

Another factor to consider is that, when someone acquires sudden liquid wealth, a lot of people will be vying for their attention all at once. Not only might managing their wealth seem daunting, but so might picking from the many advisors who would like to work with them.

“New money has this mysticism…there’s really a tremendous amount of attention from other advisors and other channels that gets concentrated when someone takes a successful business and transfers it into liquidity,” says Webb.

“And I think that’s a place where families can feel sold, marketed [to], and the natural reaction to that would be to be defensive, to pull back and try to navigate that event in a different way.”

Getting past this barrier can be difficult for wealth managers, and Signature counts on referrals from existing clients as its primary driver of growth, as well as referrals from centers of influences within the business-owning community.

“We have always networked with typical centers of influence such as estate planning attorneys and accountants, but our focus on first generation wealth leads us to spend time with other centers of influence dealing with that group such as investment bankers and private equity firms,” said Justin Fulton, principal and client strategist at the firm.

And while the firm highlights that new wealth’s not “new,” its whole strategy is based around the fact that wealth that is newly liquid needs “a different strategy than multi-generational wealth,” says Webb.

Specifically, he explains that the firm’s conversations with clients are oriented towards “creating a tradition of having liquid wealth, in contrast to multi-generational families who…already have that tradition.”

Not only is it about establishing new practices, but also about “bridging” relationships and strategies, says Fulton, as wealth creators are often surrounded by multiple but disunited advisors.

“So one of the things I think a multi-family office brings to the table is more coordination,” says Fulton.

However, there are of course similarities between concentrated, first generation wealth and wealth that has already been transferred at least once. For a start, Fulton stresses that working with the wealth creator still requires a lot of the “softer” services – which later generations require on the family cohesion side. He says the firm spends a “significant” amount of time on topics like the potential of wealth.

“This leads to deep conversations about how the first generation’s choices create scenarios of challenge and opportunity for family cohesion in later generations,” he says.

The future at Signature

Also, as the firm’s clients age, if it is to retain client-families, it will inevitably start working with later generations.

“Being able to work with these same first generation families about how to carry it forward to the next generation is a nice, bright line for us,” says Webb.

However, the firm’s business development and marketing activities will remain focused on the first gen because “that is what we know,” both Webb and Fulton stress, and Webb says these are also the people that tend to approach Signature.

Nevertheless, secondary growth through working with heirs as the firm’s clients age is “exciting,” says Fulton, and will drive it to add more capacity in this area over time.

“As time marches on, families that have the opportunity to be multi-generational really can mark off goals that they’re stretching for, measuring against things that are important to them,” says Webb.