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Financial Planning > Tax Planning

Serving the Middle Market

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The smaller client — John and Jane Jones with family savings of $75,000 — used to be the bread and butter of most wirehouses. That is, until wirehouses announced they were going after bigger fish.

Now, many refuse to pay brokers who continue servicing smaller accounts and relegate smaller clients to call centers. Yet, not all wirehouse advisors choose to be guided by economics alone. Smaller clients need and deserve help as much as wealthy clients, they say. It’s just a question of building a business model to serve these clients profitably. Even call centers heretofore under close scrutiny by the NASD (Merrill Lynch comes to mind) claim they’re doing a better job of servicing this niche without losing money in the process.

Of course, the first step is to define “smaller” and, naturally, every advisor or wirehouse has a different definition. Charlie Schilleci, the branch manager in Wachovia Securities’ Pittsburgh (North Hills) office, defines it as having less than $100,000 in investment assets, or as little as $5,000 to $30,000, in some cases.

Schilleci doesn’t actually work with these clients himself; his associate and Financial Consultant, Jennifer Reddinger, does. And that describes the simple but effective business model Schilleci has devised to continuing serving the smaller client. “What I’ve done is brought in a junior partner,” he says. “She’s more receptive to working with low-end clients so, when I get referrals who may only have $50K to $100K, Jennifer gets the business.” Schilleci has a total book of $115 million including average account sizes of $500,000 to $700,000, as well as a number of million-dollar-plus accounts.

A problem all advisors have, says Schilleci, is the fear of insulting a valued client if you turn away his “small referral,” often a child or friend. Schilleci’s way is to serve them through teamwork. “Jennifer’s getting established in the business. We work with these smaller clients jointly, but she has the main responsibility for them.” Reddinger entered the business four years ago as an FA Assistant, doing preliminary work for clients but not always meeting with them face to face. “Then I went out on my own and Charlie took me under his wing,” she says.

Schilleci and Reddinger, who is currently pursuing her CFP designation, are growing their book of business together. “Long term — as I get more involved in the management side of things — Jen’s participation will become greater and greater,” says Schilleci, who first met Reddinger when they both worked at Legg Mason. Schilleci, who started in the industry in 1986 and has tasted both the wirehouse and independent business models, moved to Wachovia because, “It’s a wirehouse with the culture of an independent firm. We’re not just ‘trading our book.’”

Do smaller clients get a pared-down version of bigger-client planning? “If a client with $30K walks in the door and she’s willing to take our advice, then she’s a good client for us,” says Reddinger. “We do an Envision [a Wachovia product] plan to assess her current financial situation, where she wants to go and when, her risk tolerance… Typically with smaller amounts of money, we’ll use C-share funds within Wachovia’s FundSource program.” Reddinger and Schilleci receive recurring revenues from small and large clients alike. “FundSource pays us just to be the client’s advisor,” says Schilleci. “If we use mutual funds, we get trailers from the mutual fund companies.”

While they admit smaller clients often need more time and education than larger clients, “a lot of times a small client will lead to a big client,” says Schilleci, “so it’s a form of networking.”

Working With Achievers

An advisor across the country from Schilleci and Reddinger who shares their passion for the smaller client is Mohammed (“Mo”) Barakat, a senior financial advisor in the downtown Los Angeles office of Ameriprise Financial. Barakat chooses to work from the second tier of Ameriprise’s three-tier platform, that of the independent franchise owner.

What sets him apart from other advisors is his Masters in Economics from Boston University and his belief that clients should be able to expect financial education and planning from their advisors as opposed to just products. Although he has clients of all ages, Barakat works mostly with what he calls “achievers” or “accumulators,” clients between the ages of 25 and 50. At 39 years of age, Barakat communicates easily with this age group.

“What I see in these clients that my colleagues often miss is their potential to save every month. In deciding whether to work with a prospect, I look first for the right attitude. Once I determine they’re financially responsible and concerned about their future, the next thing I look for is a high savings rate. To me, the rate at which they will save is more important than how much they’ve already accumulated.”

Achievers pay Barakat recurring fees for detailed financial planning. “Every year I create what I call a ‘State of the Union address’ for each client, going deep into their financial situation and doing year-over-year comparisons of net worth and retirement assets. I spend as much time looking backwards as looking forwards so we can see their growth patterns.”

He says his clients are much more aware of where they’ve been and where they’re going — financially speaking — than those not working with a financial advisor. “It’s a big milestone when a client of mine reaches a $1 million net worth. Their small steps add up and, although it might take them 20 years to get there, the second million might take as little an another four years. In the end, their savings rate is what defines them.”

In fact, Barakat rates his clients according to their willingness to save. They get a failing grade if they save less than 5 percent of their income, a C minus if they save at least 10 percent, a B minus at 15 percent and an A at 20 percent or more.

“Clients who have been with me a while may one day see a financial report I’ve prepared for them and wonder where all the assets came from. I say, ‘You saved that.’ They’re often surprised.”

Merrill’s Financial Advisory Center

So there are advisors out there who work with small clients rather than referring them to a call center or, as Merrill Lynch now calls it, a “Financial Advisory Center (FAC),” or group of advisors based in Hopewell, N.J., and Jacksonville, Fla., who are part of a service model that incorporates technology, product capabilities and websites specific to the needs of the “mass-affluent” customer. According to David Lessing, Chief Operating Officer of Merrill’s FAC and Mark Feuer, head of FAC and other Merrill enterprises, the mass affluent client with less than $250K has very unique needs that must be taken care of by a platform, product and environment that can serve that client well.

“The FAC isn’t a call center,” says Lessing. “It was formed five or six years ago and now serves a half million households, some above mass-affluent who just prefer this service model.”

When a Merrill client is directed to the FAC, says Feuer, “There’s a conversation between the client and an advisor in which we seek to learn as much as we can about the client’s life and goals so we can work with them to produce a roadmap to achieving those goals.” With this relationship, the client is guaranteed subsequent contact with an advisor at least twice a year in order to ensure that what is happening in their account is consistent with their goals.

Does the same advisor do the follow-up as did the original plan? “Not usually,” says Feuer, “but it will be an advisor with similar credentials and experience. All advisors in FAC go through a rigorous training and licensing program, and every client’s experience with an FAC advisor is well documented in our CRM technology.”

Lessing explains the FAC program now employs approximately 250 advisors and continues to grow. But is this a career path for these advisors, or just a stop along the way? “Many see it as a career,” says Lessing, “while others see it as a training ground for going on to serve a different segment of clients or play an altogether different role within Merrill Lynch, such as a product specialist. From a lifestyle perspective, though, it’s an attractive job. Advisors enjoy more regular hours and less pressure to bring in clients.”

Whether the for-profit business model for serving smaller clients is of the advisor’s device or is housed within a wirehouse, most advisors and industry-watchers agree the smaller client deserves to have the same, excellent client experience larger clients are given. “We think this is a growth business here in Merrill Lynch,” says Feuer. “This client segment needs to be served in a specific and special way. They want a more holistic advice platform and products that are cost-effective and tax-efficient.”

And there are many ways to give it to them, if advisors and wirehouses think creatively.


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