David R. Evannson

The Career Advisor, Summer, 2004

In our survey of LPL reps (described in our May issue and archived online at (http://www.financial-planning.com/ca_newsletter.html), one question focused on increasing versus decreasing the size of a financial planning a practice. Almost 63% of the those surveyed want to either decrease the size of their practice, or keep the practice the same size. Advertisement

“Who wouldn’t want less clients, and more money?” said one respondent to the survey. “Work smarter, not harder,” said another.

Unless you are considering a cut in pay, fewer clients can only mean one thing: You want to service wealthier clients. This is fine, but, according to Ross Levin of Edina, Minn.-based Accredited Investors Inc., there are some practical considerations to this strategic course that are worth thinking through ahead of time.

Over the years Levin has increased his fees gradually to the point where he is now firmly embedded in the high-net-worth market, as the firm’s name would indicate. He says he charges annual retainers, and his minimum is now $10,000 with a top annual retainer of perhaps $80,000. The firm, with three principals, has just 200 clients.

According to Levin, you can’t just talk the talk, you’ve go to be able to walk too. “My experience is that to prosper with fewer clients with a higher net worth, your must have a broad menu of services.” For instance, he says his firm even helps client purchase their cars.

The only exception to this full-menu strategy would some highly specialized expertise. “For instance, if you knew everything there was to know about cross-border issues between Canada and the United States, that might work. Or if you know one Fortune 500 company inside-out in terms of their benefits and retirement programs, you might be able to build a high-net-worth practice around that.” Otherwise, he says, you’ll need soup-to-nuts to compete.

Levin also suggests that running a high-net-worth practice with very few clients may require a self-qualification rule. “You should probably qualify for the services you are offering,” says Levin. There are, without a doubt, those planners who are not successful in their own financial life–or to be fair, perhaps not yet–but somehow can render the kind of advice that helps others get there. “But this is rare,” says Levin.

A common trap that financial planners fall into when considering whether or not to go up-market, is a sociological one. “There are your real limitations, and your perceived ones,” says Levin. A limitation which is frequently perceived by the planner is that a wealthier client won’t like them because, ‘I’m not one of them. I didn’t go to the right schools and I didn’t grow up in the right place.'”

In truth, says Levin, “The real limitation is not a social one at all but rather a technical one. A high-net-worth client is going to have issues and questions about estate planning, charitable foundations, and stock options, among other complex issues.” Therefore, he says, the inability to successfully address these issues is the real limitation that you will face in focusing your practice on fewer high-net-worth clients–not whether the clients will like you.

It’s also important to remember anything worth going after is going to be more competitive. Levin says that during the past few years, there seems to be more competition in his sweet spot, which are individuals with between $1 million and $10 million of investable assets. “Goldman Sachs is going downstream and American Express is going up. Overall there are a lot more people talking in that space. To be there, you have to be good.”

One of the compensations however, is that once a high-net-worth practice with fewer clients is established as working business model, growing the practice is not as hard. “I don’t need 200 new clients each year to keep growing,” says Levin. “Just a few will do the trick.”