In Praise of Small Accounts

If you are a veteran financial advisor, maybe you recently lost a small client someone with, say, $25,000 in an education IRA. If so, there's a decent chance that the loss barely registered with you. Well, I'm here to tell you that such a laissez faire attitude is a bigger problem than you probably realize. Here's why: The one thing that nearly all people do when they finally come into some serious

If you are a veteran financial advisor, maybe you recently lost a small client — someone with, say, $25,000 in an education IRA. If so, there's a decent chance that the loss barely registered with you. Well, I'm here to tell you that such a laissez faire attitude is a bigger problem than you probably realize.

Here's why: The one thing that nearly all “no-money” people do when they finally come into some serious cash is dump their old advisor for a new one. The jump is usually made because the newly rich have not been given much indication that their old, previously disinterested financial advisor is a capable wealth manager. This is one conclusion drawn from a recent survey by Prince & Assoc., an industry consultant. In a survey of 87 investors who came into more than $7.5 million in the last two years, Prince found that 91.9 percent fired their old advisors for new ones. The trend also holds true for affluent people who inherit even more wealth. About a third of these types drop their old advisors for new ones, according to Prince & Assoc. (For more on the survey, see the August edition of Trusts & Estates, our sister publication.)

What gives? One reason for the ready jumpiness is that the rich consider sophisticated financial advice from a “wealth manager” to be an “entitlement,” says Russ Alan Prince, the author of the study. “Mutual funds are nice, but they want something upscale,” he says. The time to demonstrate such expertise is before the client receives his windfall, not after. This subject is especially relevant, since Baby Boomers are starting to inherit trillions of dollars from their parents.

The process of burnishing your credibility with smaller clients needs not be a monumental effort. Simply take care to position yourself as a sophisticated wealth advisor whose knowledge extends beyond which stock or mutual fund is currently hot. In talking about your background, highlight (in as modest a way as possible) the high-net-worth people you serve, and talk a little about the advanced complement of financial vehicles and solutions that you've deployed on their behalf. If you do it right, the small-time investor will feel honored to have you, and that can go a long way to securing their business for the long haul.

Oh, and take the time to care. Because if you don't at the outset, you're just going to come off like another money grubber when the client gets that windfall.

If you want some affirmation of the value of small accounts, see the story about Wachovia's withdrawal of a policy that required all smaller accounts be referred to its call center (page 28).

You never know where your next big account is going to come from.

***

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We thank you for your support. Drop us a line with your comments at: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us at [email protected]. Publisher Rich Santos can be reached at [email protected].

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