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Generations: Forget the Conventional Wisdom Go After Middle Americans

Sure, it's heresy to say you aren't targeting high-net-worth clients. But you can make more if you serve your Mom and Pops efficiently.

In the last few years, it seems every financial services company has trumpeted its intentions to focus on high net worth investors. The announcements come in the form of press releases and marketing campaigns that dwell on a single message: “We really like rich people!”

The allure of this sort of business focus is hard to resist. Who doesn't fantasize about getting a few Forbes 400 clients, eliminating those time-consuming small fry and watching the fees pile up? And wouldn't it be nice if those gilt-edge clients invited you over for canapés and cocktails — a refreshing change from the seminar room at the Ramada?

Wake up

Given the relative scarcity of such investors and given the ever-increasing competition for them, your business-development efforts may be better spent on more accessible quarry. Specifically, there are tens of millions of decent folk with six-figure portfolios who need your help — and they are willing to pay for it.

There are several good reasons to target these middle-market clients.

HNW in MNW clothing

Several of my wealthiest clients did not start out that way. My relationship with many of them began by investing five (or even four) figure sums. It wasn't until I earned their trust that they revealed and relinquished their “serious” money. Had I excluded them because of their small initial investments, I doubt I would have had the opportunity to serve them today.

Diversification isn't just for stocks

One selling point of targeting HNW clients is the ability to work with fewer people. But the fewer clients you have, the more disastrous it is if a few of them decide to leave. This is especially true if many of your clients are friends or colleagues of each other and were referred to you from the same source. They came to you as a group, and they can leave as a group, too.

Higher ROA

Whether you're using a fee-based model or standard “A” shares as your method of compensation, clients with larger pools of money get discounts on fees and commissions. You may actually make more serving a client with $500,000 than you do with one who has $1,000,000 — especially when you factor in your efforts at fending off other advisors targeting Ms. Moneybags.


Unless you have a CPA, JD and CFP after your name, you will probably have to bring in outside experts to meet the complex needs of the wealthy. Adding these cooks can dilute your importance to the client. By contrast, the needs of the middle class can generally be boiled down to a few basic concepts that most financial advisors can handle on their own.

Making a difference

If you work with Bill Gates, you could double his money, and he would still be rich. You aren't going to change his life, no matter how good you are. But a family with more moderate assets realizes just how thin the line is between financial security and impoverishment.

In the end, the true economic value of a relationship can be measured by one simple equation:

A dozen clients generating several thousand dollars a year in fees (yet each taking only a few hours of your time) are much more desirable than the millionaire day trader that needs you to call him at morning, noon and night.

The trick to making this equation work for the middle market is to “Wal-Mart” your practice. The leading retailer earned the designation by continually refining its process, aiming for the highest results in the most efficient manner.

The first step in this process is to actually establish a process. A religiously followed schedule of quarterly phone calls and annual meetings will not take up an inordinate amount of your time, yet it is likely to make you look better (and do better) than 90 percent of your competition.

Once you have calculated the time it takes to complete your process for each client each year, you can establish the minimum annual fee you need to charge. Take the length of the process in hours, add another 25 percent for travel and time between appointments, and multiply by your desired RPH (revenue per hour). An example: 3 hours × 1.25 × $250 RPH = about $1,000.

Next, develop a few standard asset allocation models. Review the models (and funds) quarterly, and rebalance the clients' assets annually. Lastly, look to outsource all non-core tasks.

Serving the needs of MNW clients may give you the best chance of reaching HNW status for yourself. When you get there, I know a few people who would be happy to sell you financial advice.

Writer's BIO: Kevin McKinley is a CFP and vice president of investments at a regional brokerage and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future.

Is It Worth It?

Revenue generated by client/Hours you spend on client = Revenue per hour (RHP)

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