Ultra High Net Worth Clients, Ultra High Net Debt Advisers

Headline sales in 2013 of premium art, private jets, houses, superyachts, bloodstock and the other foibles of ultra high net worth individuals create impressive column inches for the advisers, brokers, dealers and auction houses. A certain spring arises in the step of those individuals welcoming you into their offices. However behind the perma grin, firm handshake and the Ralph Lauren Black Label double-breasted suit lies an unspoken truth. Whisper it quietly, the cash banked tells a dramatically different story. The wealthy Russian client’s private office has withheld the most recent payment, the Chinese billionaire is not responding to the request for settlement of his account, and the Indonesian client is pre-occupied with the recent changes in government policy on the fortunes of his business. The list goes on…..

Advisers and intermediaries have largely improved their pre-sale credit checks over the last decade. However, their cashflow methodology has hardly changed. I am referring to how they convert revenue into cash banked. The balance sheets, particularly amongst the top 10 firms in each sector of premium art, private jet, real estate, bloodstock, real estate, jewellery are littered with outstanding debtors. It is painful but not terminal. Routinely, executive memos are issued in the third and fourth quarter of the financial year advising all non-essential planned expenditure (headcount, travel and entertainment, marketing, longer-term client initiatives etc.) is to be put “on hold”. Get below this tier in each sector and there are firms whose very survival is on the line.

It is like Kate Moss coming to terms with twenty years of hard living in the bathroom mirror. Not such a pretty sight away from the flashlights of the fashion world’s jeunesse doree.

My observation is that many of these advisory and intermediary businesses suffer from a lack of goal congruency and mutual self-interest in the middle management layers of these businesses. The best intentions of executive management are distorted in the day to day dealings with the clients. Cash collection is not seen as important in the organisation or an executive priority. There is no carrot or stick. Indeed, in many cases the client’s principle contact in the firm is not accountable for banking the cash. It is the responsibility of administrative or finance people. When pressure is applied on the principle contact, fearful of losing the cherished relationship or not knowing how the UHNW individual will react to his “honour” being questioned, the adviser or broker procrastinates. He or she makes up excuses to “Finance” why Client X is unavailable or it is the wrong time to ask (another valuable consignment is on the way or they are in delicate negotiations to buy a replacement yacht or plane).

Here is what these firms need to immediately act upon:

1. What are the desired behaviours and results we seek from our clients ? (our terms and conditions are routinely adhered to with very few exceptions, no debtors beyond 90 days and so on)

2. What are the desired behaviours and results we seek from our advisers/brokers? (high-level of self-worth and self-confidence, act as a peer not a pawn of the client, favourable terms agreed at all times, preventative and contingent action in place for cash collection, accountable for their own behaviour and performance)

3. Where are the mis-alignments?

4. What is the priority? (consider the seriousness, urgency and growth of each issue)

5. What action is required? (clearer business goals and accountabilities, improved individual skills and behaviour, improved tools and communication, improved experience and so on)

6. How do we make that happen? (stronger exemplars and avatars in senior management, training, development, more effective individual performance and reward, other carrots and sticks)

My experience is that sustained improvements can be dramatic if leaders in these businesses and their subordinates have the skills and volition to make cash collection a priority and where necessary, seek external help.