What's on the menu? Working with small-fry clients

Jun 26, 2011 @ 12:01 am

By Lavonne Kuykendall

For some advisers, small is not only beautiful — it is profitable, too.

Although most financial advisers shun small accounts, others are using a variety of business models to serve investors with modest savings, or those just looking for someone to review their investments. And they are making money doing it.

Whether they charge by the hour, offer a menu of a la carte services or provide online-only service, these advisers say that it can be done. And they say that they derive satisfaction from helping middle-class investors, especially because some of them become more successful and turn into wealthy clients.

Consider Robert Schmansky, founder and personal financial adviser at Clear Financial Advisors LLC. His firm offers a menu of services at an hourly fee of $250, with projects at a set fee starting at about $600.

When he worked for a financial planning firm that charged an annual fee based on client assets, it typically took three or four meetings to address the issue that the client came in for in the first place, Mr. Schmansky said.

“Fifty percent or greater of the time spent was not focused on the client's concerns,” he said. “That isn't what they pay for.”

Mr. Schmansky said that he was often frustrated when clients left the firm after a few years because of continuing fees. Now he is able to “charge 50% less and do less, but [it is] targeted towards the client's needs.”


Savant Capital Management Inc. also grappled with how to handle smaller client accounts.

Over the years, the account minimum at the full-service advisory firm rose to $500,000. With $2.2 billion in assets, the firm thought that it wouldn't be profitable to keep smaller accounts, and it faced the delicate problem of how to respond to clients who asked the firm to take on their friends' or children's accounts, which usually fell well below its minimum.

Savant decided to take a page from auto manufacturers and create a separate brand, Savant Portfolios, to offer a somewhat pared-down set of services at a lower price, starting at $900 for accounts of about $50,000, compared with the $5,000 minimum fee for services at the main business.

“Toyota sometimes puts its Lexus dealerships right next door,” said Brent Brodeski, chief executive of Savant. “Toyota clients sometimes grow up and become Lexus clients, but Toyota makes money either way.”

Since its launch about 18 months ago, Savant Portfolios has picked up 500 clients and now is more profitable than the main business, Mr. Brodeski said.

Another planner who charges by the hour sees a trend toward clients' saving money by separating financial advice from portfolio management.

Cheryl Krueger, president of Growing Fortunes Financial Partners LLC, conducts all her business on an hourly basis for clients with assets ranging from just a few thousand dollars to those with millions.

She frequently develops a retirement plan and gives recommendations on what investments to purchase. Then she sends them off to do their own buying.

“I send a lot to [The Vanguard Group Inc.],” Ms. Krueger said.

“If a client wants my ongoing review, they get sent to Scottrade [Inc.],” which allows Ms. Krueger to view their portfolios without making any trades.

Clients come to her for a range of services, from a full retirement plan to a financial checkup for newlyweds who “want to make sure they are on the same page,” she said.

Many of these clients don't need a lot of hand-holding.

“I recommend people come in at least every couple of years,” Ms. Krueger said.

Life events, tax law changes or other situations sometimes require additional visits, but “one time a year for someone in their 30s is more than they need,” she said.

Jerry Verseput, a financial adviser with Veripax Financial Management LLC, charges $400 for a “financial checkup” that results in a well-diversified portfolio that includes asset classes that individual investors may not think of, such as managed futures and energy master limited partnerships.

“You can't sacrifice quality to serve a lower-net-worth client, but you can reduce the scope of what you do,” he said. “If they go to a local broker, they'll get sold the same mutual fund that was sold to the last 20 people who came in the door.”

Sheryl Garrett, founder of The Garrett Planning Network Inc., a team of financial advisers who work primarily on an hourly basis, said that investors on tight budgets didn't have many options until hourly planners and some low-price online portfolio managers came along in recent years. Eventually, increased competition will put downward pressure on the fees some advisers charge, particularly for asset management, she said.

“Most individuals do not need a full-time money manager or financial planner, but they do need a planner they can turn to periodically,” Ms. Garrett said.


Some advisers think that online investment advice, which can be offered profitably at a very low price, will become more common.

Startup investment adviser Future Advisor charges $20 to $30 a month for its Internet-only investment advice.

It offers an analysis of clients' savings patterns, projects whether they are on track to meet their retirement goals, evaluates their investments and offers lower-cost alternatives to high-cost mutual fund holdings. The site also offers a reminders list and quarterly re-balancing advice.

Many clients fall into two categories, said Bo Lu, chief executive of Future Advisor.

“Some folks are managing their investments themselves and want a second opinion, or they don't have enough assets to have a human adviser,” he said. “People are looking for a second option.”

E-mail Lavonne Kuykendall at lkuykendall@investmentnews.com.


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