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July 24 (Reuters) – Financial advisers pursuing the business of wealthy families are increasingly being greeted by a formal questionnaire.

About a decade ago, wealth management firms typically only received “requests for proposals,” or RFPs, from large institutions, such as endowments, and the occasional super-wealthy family with $50 million or more.

These days RFPs, which quiz firms on everything from their investment strategy to their succession plans, are being used by a wider array of families, even households at the $5 million level, advisers and consultants say. Advisers can thank the financial crisis, Ponzi-schemer Bernie Madoff and other scandals that have made it harder to win a client’s trust for the extra homework.

Even outside of a formal RFP process, advisers are getting more of an interrogation.

“Wealth managers of every size are reporting that they’re seeing clients walk into their office with a structured list of questions,” said Philip Palaveev, chief executive of the Ensemble Practice, a Seattle-based consulting firm to wealth managers.

DUE DILIGENCE

If you receive an RFP, don’t automatically answer it, even when significant assets are at stake. Where a long response is called for, it makes little sense to spend the time if you’re one among a dozen firms the family has sent requests to.

Instead, advisers and wealth management firms should first be just as inquisitive in return. Have a phone conversation with the family or its representative before you start answering any of the RFP questions. If they seem to know a lot about your firm already there’s a good chance you’re on a short list.

You can tactfully explain the need for a preliminary call by saying to the family that you’re selective about the relationships you choose to pursue so that you have more time to concentrate on exisiting clients, said Gregory Rogers, founder and president of RayLign Advisory LLC, a Greenwich, Connecticut, consulting firm that helps ultra-rich families choose wealth advisers.

Once it’s clear you’re a real candidate, start focusing on creating a response to the RFP.

THE QUESTIONS

Advisers interviewed by Reuters said that while RFPs are still not standard practice, they’ve seen a significant pickup in the number they receive.

Thom Melcher, managing executive of Philadelphia-based Hawthorn, the ultra-high-net-worth division of PNC Financial Services Group, said he can count on one hand the number of RFPs his division got between 2000 and 2005. That number has gone up at least 10-fold since the financial crisis in 2008, he said, tying the increase to the growth of PNC and the increasing sophistication of investors.

The RFPs vary widely in length, but many have variations on the same questions, said Charlie Grace, a senior consultant with Family Office Exchange, a Chicago-based association of about 400 ultra-high-net-worth families.

The form often asks about a firm’s average and median household size among clients and the adviser-to-client ratio. It also may ask detailed questions about fees, ownership of the firm and profitability. Some RFPs go so far as to ask about the civil and criminal records of the staff.

Hawthorn’s Melcher said one of the best questions he has seen in an RFP was “Are you answering these questions?” Sounds odd, but it is a way for the family to find out if the RFP was outsourced to someone in the back office or compliance. Grace said he has seen one query that probably serves as a potential deal-breaker: “Were you invested with Madoff?”

Advisers can customize their answers to the RFP by first having a conversation with a family representative about their biggest concerns. Try to determine why they’re on the hunt for a new adviser, suggests Ensemble’s Palaveev.

Another tip: Focus on what makes your firm unique, be it niche expertise or investment strategy. If you have any big-name clients, ask them if you can mention their names in the RFP response, Palaveev said.

BE WARY

Russ Alan Prince, president of Redding Connecticut-based Prince & Associates Inc, which consults for the ultra-wealthy on the use of professional money managers, noted that RFPs can be unreliable because there’s nothing to stop a firm from lying.

In the end, it’s likely that clients are going to pick their money manager the same way they always have: based on the recommendation of a trusted source, like an accountant or estate attorney, said Prince. The best of them usually know the key players well enough not to need an RFP, he added.

RFP or not, says Hawthorn’s Melcher, being scrutinized is part of the job.

“What I do for a living is ask people with $20 million-plus to hire me,” Melcher said. “It’s a pretty incredible question when you think about it.” (Editing by Jennifer Merritt and Prudence Crowther)

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