Drive-Through Advice

Drive-Through Advice

The mass affluent aren’t worth a planner’s time, right? New technology is upending that assumption and opening up entire new markets to forward-thinking advisors.

The mass affluent market has always puzzled financial advisors, at least from a business perspective. It’s simply more efficient (and often more profitable) to advise a single $2 million account than ten $200,000 ones. Too many clients, each with unique demands and complexities, stretch an advisor’s resources thin.

Yet competition for the high-net-worth client is fierce,says Stacey Haefele, CEO of HNW, a financial services marketing and technology group. “With the mass affluent, there are more of them, and interest in that area is growing. Retail banks are putting them in their cross hairs. And RIAs will have to start thinking of retail banks as competitors.”

In fact, about 40 million Americans hold assets, outside their home, of $100,000 to $1 million, according to Forrester Research. Three-quarters of those with $50,000 to $250,000 in investable assets are seeking help in managing their financial concerns, according to a fall 2012 report from Merrill Edge.

“The mass affluent seems to be the new black,” says HNW’s Haefele. “Why? There’s a considerable amount of money and opportunity there, and it’s really an underserved market. There’s only so many high net worth clients you can go after. And every firm is looking to grow its book of business.”

But it’s tough to make a business out of serving them well, says Ed Tracy, principal with Deloitte Consulting and leader of the firm’s wealth management team. “If you traditionally focus on people who have $10 million or $25 million your model is likely focused on face-to-face or telephone advice.  And that’s a prohibitively expensive model to open up to folks who bring less assets to the table. You’re going to have to determine, for a lower liquidity segment, how to profitably serve them.”

As in many other industries, however, technology is leveling the playing field. There has been a dramatic rise in sophisticated financial planning apps and self-service sites that allow advisors to model financial plans and direct investors without the time and costs involved in a more traditional full-service approach. They give advisors the chance to pursue the mass affluent without cutting too deeply into their day.

Speedy Service

Neal Ringquist, president and COO of Advisor Software, says his firm has watched as the financial crisis shrunk the assets of some firms’ top clients and the advisors tried to make up the difference by swimming downstream, but getting stretched thin doing so.

“After the credit crisis, advisors lost a chunk of assets under management,” says Ringquist. “To get back up to revenue levels they needed help to become more efficient to service more clients with fewer assets.”

Seeing a need, the Walnut Creek, Ca.-based software firm came up with goalgamiPro, a web-based platform that lets advisors and clients collaborate on goals and strategies online – advisors save time as clients input household resources and accounts on their own; the program calculates various financial scenarios under different financial plans.

Sergio Mariaca, president of Mariaca Wealth Management in Lake Worth, Fla., has used goalgamiPro to demonstrate potential financial plans for his clients and prospects that aren’t yet at the asset levels of his typical client base.

“Nowif someone has $350,000 or even $250,000, I can make some impact with them. You don’t want to run people away, and I am certainly going to consider them. Now I have the tools,” he says.

Self Serve

Most of the new tools use web-based platforms that let clients, or prospective clients, enter their own financial data, run investment scenarios, experiment with different allocation models or timelines, all without needing to first speak to an advisor. The idea is they will come up with some of their own answers before virtually tapping on an advisor’s door for more help. Key? Investors enter data independently and can answer questions occasionally on their own by having a window into their own finances.

“If you give them transparency in how they’re performing, [investors] will serve themselves in terms of keeping track of stuff, and then call their advisor for more important things,” says HNW’s Haefele.

If clients want more hand-holding, the information they’ve entered flows directly into a rep’s workstation, making it easier to answer their questions quickly and with less effort. Plus, some clients prefer being more in control of the information and how it is being used.

“That’s especially true for younger clients who want to do their own thing and play around” with the tool, says Dinesh Sharma, CEO of financial planning tech house Omyen.

Omyen launched its most recent module, Cash Flow Planning, in December. It helps clients create a lifetime financial projection.  “They can go through four or five steps without entering a lot of data, see key gaps they may have and what they may need to do. That essentially motivates them to contact advisors for help.”

Jonathan Stano, an advisor with Greenville, SC-based Elliot David Investment Advisors, inherited the IRA business of an engineering firm several years ago; the former reps considered the business “a burden”; each IRA was a separate relationship and had to be created and maintained as such, regardless of the size. Each was requiring the same level of work.

In July, Stano adopted Omyen’s Wealth Planner and found the program saved so much time that they’re considering pushing it out to additional clients. Engineers, it turns out, love the ability to run calculations from cash flow to risk tolerance by themselves, without committing to anything. They check with Stano when they want to move forward. The positives for him? It frees up his time to help other clients. Also, getting the clients to spend time entering their own data, at their leisure, helps him discover additional accounts or assets they hold with other advisors or insitutions.

“We may not have any other way of knowing about that without trying to pry for it,” he says. “This lets them expose some of their assets without my directly asking, and opens the door.”

High End with Plain Wrap

But one of the biggest advantages of giving investors the freedom to run calculations themselves before talking to a financial advisor is that, ironically, it builds trust with the advisor. The client is using what looks like a premium service (and indeed not too long ago would have been) before they are ever charged a fee. The mass affluent client is clearly eager for help, but they’re also fee sensitive and can be nervous about paying for service.

Offering potential or current clients a chance to build a financial model of their retirement, or test out some assumptions about savings and investments, before they sign with a rep or ask for extra help, tells them that an advisor is genuinely looking for their best outcome; building on that trust could bring in a client for life.

Sure, not not every $200,000 client is going to turn into a high-net worth payoff. But with interest growing in attracting the mass affluent client, advisors are going to have to offer some premium perks but with an eye on their costs. Programs and modules that generate models quickly, give investors some autonomy and offer a high-end result, without taxing the rep.’s resources, could be a good weapon in this new competitive arena.