Financial Planning for the Middle Class Client

10/09/2007 12:00 am EST


Benjamin Franklin

Principal, Franklin Financial Planning

Ben Franklin of Franklin Financial Planning, advised attendees that it's a mistake to define the middle class by their net worth or income levels. This segment of society is very diversified. They hold a wide spectrum of political views, and their education levels, standards of living, and retirement goals vary tremendously.

Instead, Ben divides the middle class into four types:

Roadside - These are folks who spend above their means; have dreams, but no path to get there, and you probably won't be able to help them.

Stony ground - Potential clients in this category live within their short- and intermediate-term needs, but are not growing their savings. Sometimes, this is just a life stage, and they have some potential as clients.

Thorny ground - This segment of middle class clients have a greater discretionary income but also buy more expensive toys. They don't always want to hear the truth and often don't realize they need an advisor until they make mistakes. They can be profitable clients, if you can reinforce your value to them.

Good ground - Typically very profitable clients, these folks live below their means and save more than 15% of their income. They have a good idea of the difference between wealth and money, and can often be classified as "the millionaire next door" type of client.

Ben stressed the importance of employing the 80/20 rule-that 80% of your production will come from 20% of your labor. You must ask yourself: what client needs can you assist with that will have the biggest impact on their lives, and be profitable for you?

Michael Zmistowski, First Gulf Advisors, Inc., suggested that the first item to tackle is your own business plan. He suggested charging your fees in the same manner as attorneys and architects-by your time invested.

He agreed with Ben that it is difficult to identify middle-class clients in the traditional manner, but suggested a general guideline of folks from ages 35-45, in the accumulating stage of their lives, and with $150,000 - $250,000 in investable assets.

Michael noted that he has found that creating a simple retirement income management plan, and setting a low price for it, has helped him gather and retain middle class clients. He recommended a couple of Morningstar's programs-Money Tree Silver Financial Planner and Retirement Income Strategist-as great starting points.

He also recommended that a good step in building loyalty is by ensuring your client's assets are registered in their trust and that their beneficiary designations are reviewed regularly.

Jim Farrish, Money Strategies, Inc., who has spent 26 years in financial planning and marketing, believes targeting the middle class sector makes a lot of sense.

He noted that 76 million of the 77 million baby boomers are middle class-and they will need lots of help, including assistance with inherited assets, 401k plans, pension plans, and long-term care-a huge opportunity!

He suggested that the keys to success in this market are:

  • Define what you want. Who is your client base?
  • Decide what strategy you are going to use.
  • Most important: deliver more than you promise!

Steven Roge, of the Roge Partners Fund, discovered that targeting the not-yet wealthy client has paid off in big-and long-term-dividends. His firm created its WealthBridge strategy-designed for younger and less wealthy referrals-to capture the benefits of the separately managed accounts that his firm handles for its wealthier clients.

The programs were developed to cater to the middle class, especially the younger savers. The firm offers mutual funds, which are composed of some equities, but primarily work like a fund of funds, with global allocations. Additional services include guidance on 401k plans, as well as a network of recommended financial professionals, such as mortgage brokers, estate planning advisors, and real estate brokers.
The company charges an upfront fee, plus a percentage for fixed income. The firm also starts some of its wealthier clients in this program-those folks who want to "test the market" before they commit to more assets under management. And Roge has found that the majority of their younger clients "graduate" to become wealthier clients, needing more specialized services later.

The panelists agreed: folks in the middle-class can be very desirable-and profitable clients. By targeting their specific needs, financial advisors can reap rewards for many years to come.

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