The most common question I get from investment advisors is: how can I run a solo investment advisory firm with clients who have hundreds of millions of dollars of company 401(k) retirement plan account assets?
Well, let me show you — by running the numbers.
In January 2018, I was advised by my CPA firm to upgrade my company accounting software. I had used the same old accounting software since I formed my investment advisory firm in 1999.
After I loaded my financials into my new company accounting software, I could perform a much more detailed level of financial analysis on my 2017 company revenues and expenses.
The analysis showed that more than 80% of my company revenue last year was generated by providing investment advice to individual company 401(k) retirement plan participants. Further, my company could keep just over 85 cents of every dollar of revenue generated.
And that’s net of all associated costs of running my company — rent, utilities, research software subscriptions, marketing costs, consultants, etc.
Two Key Steps
Looking back, I now realize that I’ve built a successful and highly profitable solo investment advisory practice primarily because I solved the two most important practice management issues that all investment advisors face.
First, I have always been able to find new individual company 401(k) retirement plan investment advice clients on a consistent basis. From the beginning, I differentiated myself from every other investment advisory in my local market.
As a solo investment advisory firm, I learned long ago that I would never be able to compete with the Vanguard, Fidelity or Schwab generalized investment advisors. More recently, I realized the very same thing about the current generation of robo advisors.
There is nothing “general” about my investment advice product. I provide stock and bond market tactical asset allocation and risk management advice on the default menu of mutual fund options found on a client’s company 401(k) retirement plan menu.
My product is a very specific investment management solution to the company 401(k) retirement plan investment management decisions that are required on a default company 401(k) retirement plan mutual fund menu.
My marketing strategy is targeted to retain and attract individual company 401(k) retirement plan investment advice clients at specific companies in my local market.
I monitor about 20 company 401(k) retirement plan menus. At each company, I have anywhere from 10 to 25 individual clients. The average company 401(k) retirement plan account is at least $500,000. Most of my individual company 401(k) retirement plan accounts are over $1 million.
My average annual investment advisory fee is just under 1%. If you do the math, you will figure out that most of my individual company 401(k) retirement plan account investment advice clients are paying me between $10,000 and $15,000 per year.
More Issues to Tackle
Let me address another concern. Yes, an investment advisor must add some serious value-added when the annual investment advisory fees reach those levels.
That component is the second most important investment advisory firm practice management issue that I solved over the years. I have found the best available investment management technology that allows me to scale my individual company 401(k) investment advice niche practice.
I use a handful of independent asset class and mutual fund ranking systems. My technology allows me to provide a mutual fund investment management solution for any individual company 401(k) investment participant who I want to talk to in my local market area.
I have developed a clear individual company 401(k) investment advice niche for investors who have the same set of investment management problems that involve the same mutual fund universe.
The only thing left is an investment management template to provide customized advice for aggressive, conservative, or near-retirement company 401(k) retirement plan participants.
I provide customized investment management advice for your consistent type of client on the same company 401(k) retirement plan mutual fund menu. And I provide the same high level of customized investment advice to multiple individual company 401(k) retirement plan participants at the same company 401(k) retirement plan sponsors in my local market over and over again.
I know the best mutual fund options to own in a local company 401(k) retirement plan mutual fund menu before I make the first prospecting contact to a participant in that company 401(k) retirement plan.
I can provide more extensive and customized investment company 401(k) retirement plan menu investment advice than any other investment advisor in my local market. More importantly, I have learned how to best present that expertise in my prospect presentation.
I can’t beat the company 401(k) retirement plan robo-advisor at 30 basis points. And I don’t try. Instead, I make the individual company 401(k) retirement plan participant acutely aware of what is not included in the lowest-priced-alternative product.
Here’s my advice: Target your local company 401(k) retirement plan sponsor market. Use the current generation of investment advice technology to provide an efficient and scalable investment advice product in the most profitably way possible.
Ask your best clients for referrals to individuals who work at the same company. You can easily find prospects who would be interested in hearing your story.
In no time, you can build a new individual company 401(k) retirement plan investment advisory niche in your local market area. These new client assets grow every year and are an investment advisory fee pricing stable.
Ric Lager is president of Lager & Company, Inc., a registered investment advisory in Golden Valley, Minnesota. He completed the Accredited Investment Fiduciary program at the Center for Fiduciary Studies.