Some financial planners work with low-net-worth clients because there aren't enough high-net-worth prospects in their communities. Others are trying to expand existing businesses. Still others do it simply because they feel it is the right thing to do.
Regardless of their reasons, advisors are sometimes pleasantly surprised by the payoff from these efforts. There might be referrals of high-net-worth individuals from less prosperous clients. Or a client's outward appearance might initially disguise a sizable asset base.
In some cases, the payoff has been part of a calculated strategy, and in others it has been an unexpected bonus. Either way, these advisors say they are pleased to have not restricted their practices solely to upscale clients.
James Hallett, president of Hallett Advisors, has lived in Port Angeles, Wash., for 35 years and has been a planner for 26 years. He doesn't have many options concerning the types of clients he'd take. "This is a rural, blue-collar community," he says. "Unemployment is about twice the national average and higher than the state as a whole. As such, there are very few high-net-worth people in the community."
But Hallett says his career hasn't been diminished by a shortage of millionaire clients. "They may not have a lot of digits to the left of the decimal point," he says, "however, they have goals, aspirations and dreams like anyone else. They want to raise their children, donate to charity and have financial peace of mind."
And sometimes, they become an unexpected source of referrals. Hallett has encountered several people who worked in large cities like Seattle and San Francisco, made a lot of money and retired to Port Angeles. When they searched for a planner, they found him. "A lot of these people are referred to me by people who are my current clients," he says.
In one instance, two women were referred by a satisfied client who had about $50,000 invested with Hallett. "They said they had come to me because my client said that I was wonderful," Hallett says. "They said they needed some help with estate planning, and we signed a contract." They then noted that Hallett had never asked them how much they had. "It turned out that one of them had $2.5 million, and the other one had $1 million," he says.
For the last 11 years, Paul Baumbach, director of investments for Mallard Advisors in Newark, Del., has participated in a state program called the Delaware Money School, which provides free financial education courses around the state. "I have had a lot of interaction with people who aren't the traditional clients of a high-net-worth financial planning practice," he says. "As a result, I came to understand the importance of wanting to provide solutions with good value to these people."
To achieve this, Mallard Advisors created its Retirement GPS option about five years ago. "We have it available for a minimum account size of $50,000, and charge 60 basis points, or $300 a year, for proper asset allocation and global diversification," he says. "We rebalance quarterly and report twice a year, but we don't have any face-to-face meetings after the initial setup."
Baumbach emphasizes that he got involved in the Money School program to provide a service, not to make money. "However, we have ended up with some good clients as a result," he says. "One individual who attended a session, for example, ended up coming to us with $2 million."
Other individuals who attended sessions and appeared to be of modest means actually had a lot more assets than Baumbach expected, he adds.
MATTER OF CONSCIENCE
Karen Ramsey founded Ramsey & Associates in Seattle 23 years ago, and soon focused her efforts on high-net-worth clients. "As we became more successful, I wanted to maintain good work-life balance for myself and my employees," she says. "We began to raise our minimums and our fees. It turned out to be a good decision from a business point of view."
But something didn't feel right. "I grew up on a farm in Colorado, and we were very poor," Ramsey says. "I realized that there were people out there with no planners willing to talk to them, because they didn't have their $500,000 or $1 million."
Wanting to do expand her base without overtaxing her staff, she decided to create a website for people with at least $50,000. After working with programmers and some beta customers to refine the product, she launched RamseyInvesting.com. The site has about $4 million under management.
Like the Mallard program, Ramsey's web offering gives more limited service. She and her staff engage in discussions with clients, with two to four calls at the beginning of the process to discuss asset allocation, different investment styles and paperwork. Clients get training in how to access the site and check investment performance.
After that, however, contact is less frequent. "We rebalance every two to four months and have an annual review phone call with them," she says. "We are also in communication via email every time we do something."
In some cases, the new service has helped Ramsey to provide peace of mind for existing clients. In one example, high-net-worth clients of Ramsey's primary firm had given $75,000 to their grandchildren; the younger clients now get advice through the web service. And another of Ramsey's high-net-worth clients brought his brother in as a RamseyInvesting.com client.
"The brother was the kind of person who had some financial problems, such as always buying high and selling low," she says. "My client was very happy that I am now able to help."
EXPANDING THE FRANCHISE
For advisors who also maintain higher-end practices, creating a separate division for less affluent clients is key. From its founding about two decades ago, Hanson McClain, an independent firm in Sacramento, Calif., focused on those with $250,000 to $2 million. "That was always our sweet spot," says Scott Hanson, a co-founder. "However, after 2008 hit, we re-examined our business and realized that there was an opportunity to work with accounts under $250,000."
The firm created Hanson McClain Select, which focuses on accounts of $50,000 to $300,000. "It's not a huge business, but it certainly adds to the bottom line," Hanson says. "We started it in 2009 and have brought in $46 million of assets since then."
In addition, the firm shifted some full-service clients to Hanson McClain Select, allowing advisors to spend more time with higher-net-worth clients and work on bringing in new, wealthy clients.
Being open to low-net-worth clients has offered some surprising advantages, Hanson says. "New clients aren't always completely open when they contact us by phone the first time," Hanson says.
"There have been a number of situations where people will call us for the first time and say they only have $100,000 to invest - but in reality, we find out later, they have a lot more," he adds. "These people weren't completely open with us at first, because they didn't know us well enough for trust to be built."
William Atkinson is a financial writer in Carterville, Ill.