The point: Financial advisors who are compensated based on how much money you have invested with them have less time for the equally complex needs of less affluent clients.
You know the old saw “you have to have money to make money”? Apparently you also have to have money to get a financial planner to talk to you about making more money.
I spent a tiresome afternoon yesterday in a (thankfully frequently interrupted) discussion with a financial advisor and a coach of financial advisors about how impossible they think it is to make a living offering fee only advice to regular people, and what a flawed business model I’m pursuing.
(For the record, the business model I’m pursuing is to sell financial planning advice – and nothing else – to regular people. My ideal clients are just starting out, probably don’t have twenty-five thousand dollars burning a hole in their bank account, and are ready to start bossing their money around.)
These two people represent the vast majority of thinking in the financial planning world, which is that “asset management” is the only way to make any substantial money* as a financial planner. One of them specifically told me that offering an hourly rate or a flat fee is “perceived” as a rookie mistake, “kinda like having a gmail address as your email”.
Aw, shucks and golly. Thanks for schoolin’ me, Ma’am.
“Wealth Management”, for those of you who tune out any words that sound like a bank just barfed on a newspaper, is when you actually write a cheque to a broker, who then invests your money for you based (hopefully) on the plan you’ve developed.
Since some investors are (rightly) getting wary of commissioned salesmen masquerading as advisors, a few firms are pursuing an “assets under management” model of compensation, in which you pay them a percentage of your total portfolio value every year for them to manage your investments and give you ongoing financial advice. Most of these firms are fee-based, which is a nice muddy way of collecting fees from clients up front AND commissions for selling products on the back end.
(Jason Hull of Hull Financial Planning has a great post that articulates the assets under management model far better than I ever could.)
Where “wealth management” and I part ways is the same place most regular people and “wealth management” part ways: this model – if pursued efficiently by a savvy advisor – profits only by targeting what the financial services industry likes to call “the mass affluent”, those fortunate or hardworking (or both) individuals with more than $100,000 to invest.
Oh, they’ll accept clients with less. But remember, if you have less money to invest, and your advisor is paid based on how much money you have, AND he’s is a sharp enough businessman to lurk around in financial planning groups and dispense advice to other financial planners, time spent on your needs is less valuable than time spent on the needs of more, er, comfortable clients.
So tell me: if you have less (or way less) than a hundred thousand dollars in the bank, do you need more help with reaching your financial goals, or less?
*”Substantial” in this sense meaning “enough to never have to talk to regular people again”.