November 3, 2001

Mixed Messages

Think a big-stakes client is the one with a big pi

It occasionally strikes me how many of the planners I talk with every day wouldn't accept me as a client because of the amount of money I don't have.

The most stunning interchange I have ever had on this topic with a planner happened a number of months ago, and it went like this. "In the world of financial planning firms, there are BMWs and there are Fords. I have built my practice for people who drive BMWs," the advisor said. "I don't deny that there are people who drive Fords," he added dismissively, "but, well, there are other planners out there for them."

"I drive a Ford," I said, as pleasantly as I could under the circumstances. "What would you do if I came to your office--send me away?" He didn't miss a beat. "Well, now, you're not always going to drive a Ford, are you," he said smoothly, in a tone that might as well have patted me on the head. "You're young, you're well-educated; you'll make lots of money, and you'll get that BMW. Then come and see me. Then you can be my client."

I blinked. I know you'll find this hard to believe, I wanted to say, but my primary goal in life is not, in fact, to get filthy rich. (I happen to like my Ford Escort; I should have asked him what kind of mileage he gets on his vehicle.)

A Question of Timing

But car preferences aside, what I really should have asked him was this: Isn't the most important time for me to get the advice of a competent planner right now, when I'm young and can start off on the right foot? Isn't the most important time for me to make smart financial decisions now, when I can form good money habits and learn to save and prepare for a comfortable financial life down the road? Why are you offering to help me only after I have made money and established an ample lifestyle, instead of offering to help me get to that point?

It's building the house that's the hard part, my friend. By comparison, reallocating the flower garden in the back yard later on is the easy stuff.

What really puzzles me is that the people who are most energetically turning away from the "sell-sell" mentality and turning toward an approach that focuses on comprehensive life goals, and identifying one's values, and building the lifestyle of one's dreams, are the same people who have client account minimums in the millions. "I want to help people, not sell you things," they say. "I'm objective. I'm empathetic. I'll help you build the life you want." The part they don't say--at least not in so many words--is that they'll only do it if you already have nearly enough money to make it happen yourself.

Granted, it is true that there are "planners out there" for people like me. Despite many firms' efforts to woo an ever wealthier clientele to their new fee-based asset management programs, many traditional commission-based planners do serve the non-Beemer crowd (though many a fee-based planner will be quick to question the quality or breadth of their services). And planners like Sheryl Garrett and Bert Whitehead seem to be on to something in their efforts to serve the not-so-rich with hourly fees. Still, the number of colleagues they've converted are still so few, relative to the total population. In my home state, there are a grand total of two planners who belong to Garrett's Planning Network, and a whopping three who are part of Whitehead's Cambridge Advisors.

The Pro Bonoists

As for the pro bono angle, a number of good-hearted advisors do take on clients who don't meet their minimums--friends, neighbors, fellow church members, the elderly, or those whose situations are particularly compelling. Indeed, the outpouring of selfless, heartfelt support from planners across the country following the September 11 terrorist attacks was nothing short of breathtaking. And many advisors work tirelessly to serve the less-than-wealthy through seminars, radio shows, Web sites, or classes. But pro bono work on the sidelines has its limitations--it is, after all, on the sidelines.

Obviously, it's also true that there's nothing wrong with trying to make money. There are very few people who leap out of bed in the morning and race to work for the sheer delight of basking in the fluorescent lights of an American office building; most of us, whether we're bricklayers, financial planners, writers, or dentists, go to work to make a living and support our families. The trouble arises, however, when planners start talking about their work in terms of helping the world achieve its hopes and dreams... when in fact they're only talking about the dreams of a very select group of people, a group whose members are chosen based on the size of their portfolios.

The Problem With Fees

Part of the problem is economic. By its very structure, the business model of charging clients based on a percentage of assets under management encourages planners to favor wealthier clients in order to make that 1% fee large enough to keep the planners in business. The commission-based structure does the same thing: Well-to-do clients are likely to buy larger blocks of securities, which in turn generate larger commissions. The prevailing compensation structures of the profession reward planners who serve the rich, and this fact can change the shape and character of financial planning practices whether or not the planners like it, or even realize it.

An advisor I met at Morningstar's conference in Chicago this past June told me of the plans she'd had to make young women her target clientele, and how she'd hoped to spend her career arming them for life's financial battles through the planning services she would offer. When I asked her how it was going, she admitted, with embarrassment and evident disappointment, that she'd felt she had to change her focus to older, wealthier businesspeople whose transactions would generate larger commissions. "I didn't think I could stay in business otherwise," she said. Could she have followed her initial plan by charging the young women by the hour? Maybe, maybe not. But all kinds of professionals, from accountants to attorneys, psychiatrists to consultants, charge by the hour. Perhaps it's time to give hourly fees a second look.

The other part of the problem, however, is that serving the not-so-rich is a big risk. As counterintuitive as it sounds, the lower the client's net worth, the higher the stakes. There is a huge difference between helping a rich person spend their money and helping an average person manage what they have. The first is nice--the difference between a retirement of boring shuffleboard games or of fabulous annual yachting trips in the Caribbean. The second is a giant challenge that, if met, could mean huge, life-altering changes for the client's health and long-term well-being--and if not met, could mean a retirement of penny-pinching and agonizing over what's going to happen when there's no money left to pay the medical and heating bills.

If you screw up while helping a rich man, he might have to struggle through life with only a beach house and one country club membership. If you screw up the retirement savings of a janitor or a teacher's aide, they're out of luck, period, and there's the potential that you'll one day find them standing in line at the food bank. Big responsibility? Yes. But if you really want to make a difference, if you want put your expertise to work in a way that truly matters, that's the way to do it.

Perhaps it's time to take a moment and think: What is your compensation structure inadvertently encouraging you to do, despite your best intentions? What messages is your practice sending? And are these the messages you intend?

Most of all, are you up to the challenge of serving people for whom financial planning really matters?

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