Small Accounts...How Do You Handle?

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Jun 13, 2013 2:21 pm


I am farily fresh out of college and am with a fee-only WM firm focused on management of investment accounts, we don't do any formal financial planning. We ideally target $200K+ accounts, but as a small and growing firm have not set any solid minimums because we are willing to gather assets on smaller accounts because we find building relationships benefits us quite a bit at this point. Typically our management fee and our custodian's flat annual fee although low starts to not make a lot of sense for accounts under $30-$50k depending on the goals of that person of course. There is a $100 custodian fee per account plus our management fee so as you all know these fees become relatively expensive on small accounts even if we are providing the intangibles i.e. better service/ management/discipline/ adherence to goals etc. versus their former advisor/broker. I have recently chatted with a prospect that is interested in coming our way, however along with a retirement account that meets our target, there are about 5 other accounts with an advisor at a large bank I will not name that they are dying to get out of there because they don't think they have gotten the attention or proper management they expect. Each of these accounts are under $10k, and one of them is about $1k which in sum would be an account I would be all over, however when you consider each one individually, most of them will need very solid returns for several years to grow considering our fee and our custodian's fee. On the $1k account, our custodian's fee will be 10% of the account just to put it in perspective. Here is my question. How do you all handle these low value accounts when you consider client costs? I hate saying no because it pisses people off in the first place, and I don't mind taking a bit of a hit on my end in bearing the trading costs for the sake of the relationship, but I'm not doing them any favors on costs by managing their small accounts. The best scenario for them would be to use a discount broker until they build enough wealth in the accounts where having a pro manager makes sense, but they definitely don't want to be managing their money on their own. That is why they came to me in the first place. What does a guy like me do in this scenario?