Although many advisors offer a standard menu of mutual funds, exchange-traded funds, etc., some aim to set themselves apart and build their practices by offering private placements to selected clients.
“We’ve been active in private placements since 2012,” said Kristofor R. Behn, a CFP who is the founder and chief executive of Fieldstone Financial Management Group in Foxborough, Mass. “Since then, we’ve added more high-net-worth clients than at any time in the past.”
Behn specifically targets “self-made millionaires,” or those who have made their own money in entrepreneurial ventures.
“They don’t want standard vanilla portfolios,” he said. “These individuals have been ‘close to the deal,’ when they’ve had financial success, so we try to do the same thing with private offerings they can understand.”
The “vast majority” of such individuals have accumulated wealth in real estate, according to Behn, so private real estate deals have become a staple.
In addition, some clients take a keen interest in business opportunities in familiar fields.
“For instance, a man who is an aeronautical engineer made a large investment in a company developing a flight simulator under a Navy contract,” Behn said. “This is something he knows about, and he feels he can have some control over the outcome.”
Similarly, a client with experience in the distillery business invested in a company on the distribution side of that industry.
“These are the kinds of offerings that endear you to wealthy clients,” Behn said.
“They talk about these deals to their friends and refer you up, for a change,” meaning that the resulting prospects also fall into the high-net-worth category, he said.
PRIVATE BEFORE PUBLIC
Behn credited Bill Militello for helping him articulate the private-placement story.
Militello, founder and chief executive of Militello Capital, a Leesburg, Va.-based private-equity firm for registered investment advisers, was an equity trader on Wall Street before establishing a wealth management firm in 2003.
“I thought it would be easy to attract good clients, with my background, but it wasn’t. I asked some high-net-worth prospects what I needed to do to get their business,” Militello said.
“They all said, ‘Show me a deal,’” he said.
To Militello, finding a deal then meant researching a promising stock, but that wasn’t what those clients had in mind.
“They had made their money by developing land or fixing up apartments or engineering software,” he said.
“They wanted to see something they could understand,” Militello said. “So I learned to lead with a deal, not with a conventional investment.”
As a result, his wealth management firm worked with more than 100 accredited investors who invested in private placements, Militello said.
Donald Jay Korn is a New York-based financial writer who contributes to Financial Planning and On Wall Street.
This story is part of a 30-day series on smart ways to grow your practice.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access