Are all of your clients situations like Carl, or is his situation more like a one off?
This post comes back to my earlier points that I made to you. You need to be clear on the type of services you want to offer, the types of clients that you want to work with, are they going to participate in your process, follow your advice, fee structure, and be willing to pay for those services. Once you establish this, then you can weed out prospects that don’t fit into your practice model.
In this example, why are you taking on a client who only has $15k to invest? Are you going to have a minimum AUM?
The fee structure that you are going to use should be based in a large part based on the type of clients that you are going to be working with? If most all clients planning needs will be moderate than the % AUM should be fine for investment management and planning.
If the clients situation are mostly like Carl, your going to need a fee structure and business model that is different.
I use a tiered fee structure as a % of AUM, that declines as $$ increases. I also offer a flat rate for a finanical plan only.
I don’t know. If anything, the Carl example is a bit too specific to where G lives, especially the part where he is a lawyer but randomly has most of his wealth tied up in an “oil and gas partnership”. This makes me wonder if the stripper stuff or other details are actually based on real life people.
i charge 1k for planning. ‘receives 1k.’ well after seeing your 15k ira. im pretty sure ur fucked. thx you come again.
Don’t have time to answer all these right now, but I will later.
Long story short–Carl is an amalgam of a lot of people I know. (The “married a stripper on a trip to Vegas” is a little bit of a stretch, but it’s intended to prove a point–Carl is a ticking time bomb. Left to his own devices, he would explode and injure himself and all those around him. He needs someone who’s going to do more than sell GE and buy Apple. He needs some serious coordination of his professional advisors.
^ ok. So, in an ideal world, what fee structure would you like to use for clients such as Carl?
That’s why I do a free initial consultation and provide what I call a Financial SWOT analysis. I don’t make full recommendations. I just identify risks and opportunities for them and suggest a general direction they might go. If it’s a doozy like they need umbrella insurance, I will strongly urge them the seek out a P&C guy. The analysis covers an issue or two from each of the 8 planning areas. It helps them organize their thoughts and goals; it helps me “triage” my prospects. I will tell people I can’t help them long before we discuss fees. A lot of times they use my analysis to plan out future engagements with me. The “DIY” types like to break it up. It adds a lot of value and builds loyalty. I don’t have minimum assets because I don’t always work on investments or even insurance. Also, I like to encourage people to get started with planning and saving. I do have a well defined target market. So, asset minimums aren’t really an issue. Cash flow is an issue because they need to be able to pay my fee.
The SWOT makes a good second close. It adds a lot of value and they get a little more information than what the average adviser tells them as a client. It’s a taste that makes them want more. We (finance people) make the mistake of believing that the information we see as foundational knowledge is common knowledge. It isn’t. On top of that if you mention that it involves math; 80% of the people decide right away they are not interested in DIY and that they prefer an expert. That’s why they called you in the first place. Or, if you’re calling prospects, that’s why they agreed to meet.
Yes, part of the fee is for psychological comfort. You may know exactly what they need within 30 seconds. But they are paying for the process, for the analysis, the confidence, and for the support. Also, even though you figured out their solution in 30 seconds, it took years of study and practice for you to get to the point of being able to do that. They’re paying for your years of study. If they feel your fee is too much, tell them to go buy the CFAI curriculum and figure it out for themselves. Tell them I said good luck with that…
Most of the wealthy people that I know are not wealthy due to their mutual fund investments. Most of them have privately held businesses or mineral interests. (That is–oil and gas exploration & production. There is no other industry here.)
Do most of your clients have the lion’s share of their wealth in securities? If so, either you’re working with a very different client base than me, or you’re just blissfully unaware of where 80%+ of their money is tied up.
I don’t have a “hard” minimum. In practice, I don’t have any clients with less than $250k.
I do have a split agreement with one of the other reps, where if I refer a client to her, she gets 70% of the revenue and I get 30%. That’s probably what I’ll do with anybody who has less than the minimum (which is tentatively set at $250k for now).
Off the top of my head, I’m guessing that Carl would pay the standard rates on AUM fees: 1% for the first $2m, 0.5% for the next $8m, 0.25 for everything above $10m.
I would also charge him an annual retainer. First year would be $10,000. I expect to do quite a bit of work–entity structuring, meeting with estate lawyers, fairly comprehensive risk management analysis, etc. I expect to put in a lot of time the first couple of years.
Sometimes I can quantify the benefits, specifically with tax savings. But the vast majority of “financial planning” is not about tax savings (as noted by our newcomer whose name eludes me at the moment). It’s about peace of mind and not losing money.
All the advisors that I know that work with HNW to UHNW clients use a tiered fee structure, (as you suggest) and include the planning as part of their service offering. I think the standard rates you propose are fine.
You could use the retainer model and try it out on a few prospects to see how it goes, and them make adjustments along the way (for clients with AUM > $3 million). If it were me, I would only use the retainer model on clients with the really complex planning issues that are going to require a significant amount of planning work. Ya, there is a lot of up front work involved, but once its done its about implementing, monitoring and following up.
(I just think its really tough to sell an additional planning fee on clients < $3 million.)
I use a very defined discovery process with prospective clients to get to know them, discuss their current situation in a lot of detail, learn about their past experience with previous advisors, get a feeling of how price sensitive they are on fees, to come up with a decision about whether otr not I want to work with them, and, are they going to agree to the fee structure I use before they come on as a client. As gwoods pointed out, being able to clearly lay out all a prospects issues and opportunities in each of the planning areas in very specific detail in a prospect meeting is very important. And, at the end of the 4th prospect meeting, you just explain that this concludes your discovery process, so ask - what would you like to do? You want to sign up and become a client? Then, stop talking. If they don’t see the value you propose, then you don’t want them as a client.
Honestly it feels like you have written 500 words that can be explained in a few sentences along with a checklist or self assessment or something. I agree with the fact that you may be a little too colorful on the examples
Greenie, everyone’s a critic. You’re trying to encapsulate common problems you see in your day to day with clients, and there’s nothing wrong with that. You know your market much better than the coastal elites offering their anonymous criticisms here, but I think your head’s in the right place.
Remember, the wind tunnels blew all of the style off of automobiles. They may be more aeorodynamic, but they got no style.
Thanks DOW.
If a picture is worth a thousand words, and story is worth a thousand pictures, then I think stories are the best way to get your point across to most people.
That’s prolly why I don’t read too many stories. It’s too many words!
What, this doesn’t make sense. A story is comprised of words. So, if a story has 1000 words, that is 1,000,000 pictures, which is 1,000,000,000 words, which is 1,000,000 stories, which is 1,000,000,000 pictures, which is 1,000,000,000,000 words, which is 1,000,000,000,000,000 monkeys on typewriters
Does not compute. The system is down!
So you have four meetings with them before you sign them up as a client? I would think that two would be the most I’d want to have.
1st meeting - Here’s my resume, here’s what I do. Let me find out who the client is and what they need help with. After a one-hour meeting, I usually have a pretty good idea of what they need and what I can offer them. Then I present them with, “Here’s what I can do for YOU.” (Not “here’s what I can do for the masses”. This is unique to them and their situation.)
2nd meeting - I want them to go home and talk about it and come back with questions. After I answer their questions, I want them to either sign up or not sign up. But after two meetings, they should have enough information to know whether they want tax, investments, planning, or all of the above.
Also–the only thing that I’m really adamant about doing is the investment work. If somebody else has a tax preparer (that’s worth a darn), that’s fine. I don’t want to spend my life preparing depletion schedules and 754 elections. And if somebody doesn’t see the value in the financial planning, then okay. But if you have assets, then I want to manage them. I think I’m the best manager within at least a hundred-mile radius.
I finally read this, agree with Ohai.
Alternately, you could add, marry one, kill one, f*ck one, GO! at the end.
The whole thing could be really cut back to just the need to know bullet points, would lose all the annoying drivel. Old people don’t care about that and it seems just unprofessional. If it were me, I’d strip the whole thing down to just a list of bullet points highlighting things you are qualified to address.
I think if you focus on the amount of taxes they are paying because they are investing in this asset you should be able to convince them to sell that position. You can describe them other assets that are prolly better for them given their tax situation. Then say you can manage said assets for a fee.
anyways my dude I think you should be able to win. Mlps have underperformed like a mother fucker. Good luck greeenie!! I think ur a smart chap and can prolly add value to these idiots!!