Financial advisors have long offered their knowledge to the very people who are most likely to already understand it: high-net-worth investors. However, the arrival of new robo technologies has finally made it possible for advisors to profit while helping middle-market consumers lead a successful financial life.

For months, I’ve been telling readers how to use the institutional online advice platforms (the robos) to serve so-called accommodation clients profitably, reduce internal operating costs and access middle-market clients.

But advisors who are accustomed to serving wealthier clients may have questions about how to most effectively assist a middle-class clientele: What services do I offer middle-market clients? What does a firm accustomed to providing estate planning, advanced charitable strategies, tax planning and other high-end services offer to middle-market consumers and people early in the accumulation phase of their lives? What is my revenue model for working with people who haven’t accumulated significant assets?

Instead of revamping everything about your current service model, I’d suggest you assign this part of your client base to a younger advisor. Ideally, this person will have deep expertise in college debt management, the necessary insurance coverages and home mortgage options.

Your designated middle-market advisor should be on call to answer planning questions for clients. This person could also organize group discussions about financial issues with these clients and their friends and neighbors.


But most important, this advisor should be skilled at applying what I call the “essential formula” for financial success.

The essential formula can be described as pre-planning: Save 15% to 20% of your income each year, avoid usurious credit card interest rates and invest for the long term. This means no self churning and no buying high and selling low, thus missing out on more than half of the returns the markets deliver.

This formula is everyone’s key to enjoying a secure financial life and a comfortable retirement, almost regardless of what might happen in the investment markets.

But how many Americans actually live according to this formula? Based on our current savings rate, I’d say very few.

Many of the people who do understand the formula end up becoming planning clients because their healthy financial habits inevitably lead them to having large amounts to invest.

Why isn’t everyone following these rules? I suspect the answers are varied, but a key one is that our advertising media and consumer society bombard people with messages that tell us to “consume,” “buy,” “spend” and “trade.” Counteracting voices that say “save,” “invest” and “hold” are few and far between.

Your new middle-market service can provide this much-needed advice, and if you preach the essential formula, your voice will have to be very loud and clear to cut through all the dissention and distraction.


How do you get paid for this service? XY Planning Network, an organization of fee-only advisors focused on Generation X and Y clients, charges monthly fees that come directly out of the client’s bank account — just like the automatic payments that go to cable TV and phone companies.

The amount varies depending on clientele and services offered, but one key insight is that younger clients actually prefer to pay their fees monthly rather than quarterly, and out of their bank accounts rather than their (sometimes nonexistent) investment accounts.

A more extreme model, pioneered by Mark and Eleanor Herhold of Security First Financial based in Grand Blanc, Mich., actually provides free essential formula and pre-planning services to clients who haven’t yet built up an investment portfolio.

The Herholds moved from a predominately wealthy clientele to a middle-market model after they drew up a description of their ideal client. At the end of the exercise, they were startled to discover that there was nothing in their ideal client description that specified any particular net worth. They wanted to work with clients who had reasonable expectations about their investment dollars, who were enjoyable to do business with and were willing to follow the essential formula.

If clients agree to follow the formula, the Herholds welcome them as clients. They are charged 0.8% of their assets as the pre-planning fee — even if they don’t actually have any assets to manage.

How is this possible? During the early years of the relationship, these clients will often use the money they have been encouraged to save to pay down credit card debt or an auto loan. But eventually, when the debt obligations are satisfied, the money will find its way into an investment account.


The Herholds maintain a spreadsheet that projects the future size of the investment accounts of each client, based on the agreed-upon savings rate. That allows them to see how profitable each client will be at various points in the future.

For example: A client agrees to save $500 a month and is out of debt at the end of the first year. At the end of the next year, the investment account might be worth $6,000 or so, and the fee will be a meager $50 in that year for one in-person 50-minute meeting and a phone call or two.

Over 10 years, as the client’s salary increases and the contributions become bigger and as the markets raise the value of the assets, the spreadsheet might project an account worth closer to $100,000, and fees of around $800 a year for basically the same level of service. In the past five years, this approach has taken the firm from $60 million in assets under management to more than $180 million.

In the client meeting, the Herholds also calculate future Social Security and pension information, then figure out how much additional income the client will need in retirement. There are no performance statements, but instead periodic updates on what the growing portfolio will provide at age 65.

In one meeting, a client may be told she can expect to have an income of $2,500 a month above Social Security once she retires. Two years later, after a lot of hard saving, that same client may see projections of $3,000 a month in retirement.

By offering these pre-planning services to a middle-market clientele, the financial planning industry will help create more wealthy individuals and take on a larger role in changing our society for the better.

Bob Veres, a Financial Planning columnist in San Diego, is publisher of Inside Information, an information service for financial advisors. Follow him on Twitter at @BobVeres.

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