We like to think of the rich as lavish spenders, lighting cigars with hundred dollar bills. Maybe drug lords do that, but many wealthy people toss nickels around like they were manhole covers. This can work to your benefit.
The Case Against Slashing Fees
You might think this means competing on price and becoming the cheapest provider. One look at the battle between wireless companies lets you know it’s a race to the bottom. You don’t want to be cutting your fees and commissions to almost nothing? Why? Because you aren’t selling cases of soda that are drop shipped. You are selling a service based on giving lots of attention and accessibility. Other clients pay full price to get the same level of service. It’s not fair. Your professionalism and knowledge has value .
Besides, wealthy people are great negotiators. They may take your offer, show it to their current provider and ask: “Can you match this?” They value long term relationships, so they are often reluctant to change providers.
I May be Able to Save You Money
Your business probably operates (or could operate) in two spheres, the asset side and the liability side. Wealthy people often have their feet firmly planted in both camps. Their assets represents their wealth. The liability side represents the loans they have on property and other stuff. It gives them leverage. You’ve heard the expression “Other people’s money” or OPM. They use it a lot.
The stock market runs in cycles. It has its ups and downs. Interest rates may vary, but that rich prospect is always paying interest on that loan until they either pay it down or sell the underlying asset. In times of low interest rates, municipalities often refinance bonds, paying off the higher interest one by issuing a new one at a lower interest rate. You know all about call protection and Early Redemption Provisions from your Series 7.
How the Conversation Goes
Use this logic with your HNW prospects.
Here’s the scenario. You are at a community event. Lots of people know who you are and what you do. They often ask: “How’s business?”
Let’s assume your firm also does residential mortgages. Always know the lowest rate you can show on a fixed rate mortgage to someone with perfect credit. For example, a 15 year fixed rate mortgage might be 3.625%. (As of 3/19/19). File that away.
When they ask: “How’s business?” you answer: “You know, with all the talk about rising interest rates, I can’t believe we are still lending money at 3 5/8%.” Stop talking.
They might have four possible answers:
Getting the Appointment or Call Set Up
Now you have their attention. A thought occurs to you: “I think I might be able to save you money. Why don’t we talk on Monday…” You might wonder why you don’t continue the conversation now. That’s because you have no idea what they have in mind or the details of their financial situation . They also mentioned credit cards, asset based lending and maybe even margin. You need to do some studying up. You are also not probing for information or pinning them down, which might make them uncomfortable.
Using a fishing analogy, the rate was the “hook.” That got their interest. You can meet with them, draw them out, explain you lend in several different areas at different rates. You’ve got the conversation going.
Should you lead with a variable rate instead of a fixed rate? In my opinion, the answer is no. We are in a rising interest rate environment. Suppose they thought the rate was low and asked if that was a variable rate. You explain “No, that’s a fixed rate we are offering on a 15 year mortgage.” Now you really have got their attention.