Investor Economics at CFA Society Annual Wealth Management Conference: The Seven Transferable Lessons of Luxury

This article was written by Lauren Foster and appeared on the CFA Institute Enterpising Investor website on 18 June 2012 and can be also found on the CFA Institute’s blog at It has been reproduced below with the permission of the Institute and the author.

“The Seven Transferable Lessons of Luxury: What Prestige Brands Can Teach Private Wealth Managers Reply

It is pretty rare these days to attend a financial conference and experience an “aha moment.” But that’s exactly what happened to me during the opening presentation at the CFA Society Toronto’s recent annual wealth management conference (a sold-out event). Keith Sjögren, senior consultant and managing director for consulting services at the research firm Investor Economics, gave an overview of the private client industry and, at the end, touched on what I thought was a fascinating topic: transferable lessons from the luxury market.

We all know there is a link between wealth and luxury: after all, affluent investors tend to have a penchant for the finer things in life, including jewelry, antiques, art, yachts, and wine. And private banks and financial advisers are often called upon to help their clients acquire, finance, insure, and tax-efficiently bequeath the trappings of wealth. But are there any actual business lessons from the luxury sector?

The short answer is yes.

Wealth advisers and private bankers, Sjögren suggested, are in the luxury business whether they realize it or not. “They just happen to sell investment services to the luxury market,” as he put it. So it may help to start thinking about how luxury brands deliver their services and market themselves — and whether there is anything you can adapt to your own practice.

First, some context: Sjögren’s observations are the result of work his firm did on behalf of a major Canadian financial institution that wanted to know how other providers of services to the wealthy met, or exceeded, their clients’ expectations, and whether they could apply any of those same business strategies in their work. During the presentation, Sjögren used a series of anecdotes from some of the leading luxury brands to illustrate concepts that could be applied to private wealth management.

Here is a summary of the key points:

•It’s all about how you talk about your business. Sjögren said he asked the head of Tiffany & Co. (TIF:US) in Canadato describe the business she was in. Somewhat surprisingly perhaps, she replied: “My job is to help people celebrate.”

“What we drew from that was the importance of how you position your firm with your clients,” Sjögren explained, when I spoke to him recently. “If you say, ‘My job is to sell you expensive cutlery,’ that’s one thing. If ‘my job is help you celebrate,’ it’s a far more positive value proposition.”

Sjögren’s point is that it’s important to figure out what it is you do (in general), and what it is you do for your clients. “Advisers are all very keen to tell you what they do for themselves — for example, gather assets — but it’s just as important to explain what they do for clients and how they develop their value proposition, and to make sure that the message is clear and consistent and that everyone has a similar understanding and belief.”

In sum, “It’s critical to understand what you are in business to do,” Sjögren said. “Are you in the wealth business to provide your clients with ever-increasing wealth or to enable them to secure their retirement? There needs to be a consistent and well-defined purpose for the businesses.”

•Stick to your knitting — the segment you know very well. To illustrate his point, Sjögren reminded the audience about Mercedes’s missteps with the ultra-luxury Maybach brand and its money-losing smart car. (For more, read: “Mercedes Puts Maybach out of Its Misery.”) You get the picture.

•Understand the market you are after and focus on it very heavily. Sjögren explained that at one point in time Four Seasons Hotels and Resorts was in the business of owning properties and managing hotels but realized it was far better at managing hotels and providing resort services than finding the right properties. So it effectively got out of the property ownership business and concentrated its efforts on being the best provider of hotel services to the luxury market. (Four Seasons operates hotels on behalf of real estate owners and developers.) “The outcome is their ability to charge a premium for their rooms, which is significantly above what other hotel chains charge,” Sjögren explained.

•Choose your market very specifically. Here Sjögren used Singapore Airlines (SIA:SP) as an illustration, explaining that at some point the airline slashed the number of routes it offered with first class service. “Once they reduced the number, the number of people who flew first class went up. The point is to choose your market very specifically. It is better to have a strong presence in fewer markets than a moderate presence in multiple markets,” Sjögren said. “It’s important to provide a unique customer experience.”

•Understand the competitive landscape. Sjögren pointed to a slide of Harrods inLondonand asked how many people knew that Harrods Bank, a private bank founded in 1893, operated from the famous store in Knightsbridge. (The bank’s own website touts that it is one of London’s best kept secrets). The point? “You don’t know where the competition is going to come from.” When we spoke after the conference, Sjögren gave another example. He said many people were dismissive of the Dutch giant ING (INGA:NA) when it first arrived inCanada, but it had “a big impact” on the local private banking industry. “Competition can come from places where you least expect it,” he cautioned.

•Get the experts involved in the relationship early on. As Sjögren told it, the Canadian Opera Company was having a hard time fundraising for the opera house inToronto—until the architect and artistic director, “who had a lot of skin in the game,” got involved. Sjögren’s point was that it pays to bring in the experts “as you develop and manage relationships” and not to delay doing so. “If you are talking to a client about hedge funds and you have only studied hedge funds 101, you are probably not the guy the customer wants to talk to. Don’t wait too long before bringing in the experts.”

•Be innovative. Even though Coach (COH:US) may not technically be a luxury brand (it falls into what industry insiders would call “accessible luxury”), the lesson it offers is still valid. “What the company is known for and what they strive for is innovation in design,” said Sjögren. “What we have found in dealing with luxury consumers is that they are early adapters and early adopters — they like new designs and new technology. They are keen on innovation and uniqueness and don’t like packaged solutions.” Private wealth, he said, is all about offering customized solutions that focus on the specific needs of the client.”