Is Your Asset Minimum Too High?

Is Your Asset Minimum Too High?

by: Pat McClain

Wednesday, November 20, 2013

 

Identifying reservoirs of new clients in a competitive sector like investment advising is never easy. But if you’ve established inflexible (or even random) new-account minimums, then you may actually be referring viable clients to the competition.

Regrettably, we did this for many years.
Our firm had long had a $250,000 new client account minimum. We had streamlined our processes so that all our clients got nearly identical levels of service. Because our company’s revenue is generated as a percentage of AUM, we believed the $250,000 standard made sense both fiscally and operationally. But was it optimum? Were we missing an opportunity for growth?
When a potential client contacts our firm for the first time, our marketing department collects as much data as possible, including how the prospect found out about us and the amount of manageable assets in the portfolio. Once we took time to look back at that information, we discovered an uncomfortable truth about our company.
Some years back, we began to run Friday reports on that call data. We looked at the number of first-time callers, how many met our account minimum, what their average asset level was, and how many first-time callers scheduled an appointment.
Yet for some reason, we excluded the investable assets of the callers who did not meet our account minimum. And once we added those numbers to the reports, the information was so compelling that we quickly changed our entire approach to client qualification.

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TURNING AWAY MILLIONS
Day by day, month by month, we had been turning away tens of millions of dollars of manageable assets.
We also discovered something else about the people we turned away: They had tremendous upside. They were younger than our typical clients, many in the prime of their careers, and were highly motivated savers. Even worse: Many of these “unqualified” callers had missed our minimum by a painfully thin margin. They may not have had $250,000 when they called, but based on their saving habits, they would soon.
The question arose: Would our AUM model still be profitable to us, and beneficial to the client, if we lowered our minimum?
We decided to try to make it work. In 2010, we founded a separate division, with an alternate level of service, designed to meet the needs of clients with $50,000 or more. These clients get annual portfolio reviews with an advisor and have access to a dedicated customer service representative who is familiar with their account. We’ve also increased the minimum for our full-service option to $300,000.
After $95 million in new client assets, we’ve decided to stick with it.
The lesson for us: Just because your current model is working doesn’t mean you should let it stagnate. Those new clients may already be beating down your door.
Pat McClain is cofounder of both Hanson McClain Advisors and Pathway Strategic Advisors in Sacramento, Calif.

Advising the Self-Employed

Tax pros can help freelancers

November 19, 2013

By Jeff Stimpson

The economy has thrown tens of thousands of taxpayers into a new category of employment as contract, or freelance, workers -- and they could use some advice from tax professionals.
“Many of my clients have lost their jobs and because of their age -- usually in their 50s and 60s -- they are having difficulty finding new employment. Some of these clients have decided to become self-employed in the same field, usually as consultants. One of their main concerns is paying for health insurance until they are eligible for Medicare,” said Stephen DeFilippis, an EA at DeFilippis Financial Group, in Wheaton, Ill.
As companies rein in the costs of health care benefits and advanced professional salaries, many workers who thought they’d be clocking regular hours in the prime of their earning and benefits years instead flounder in what is essentially a freelance work world.

“We do see a lot of clients 50-plus who are now forced into freelance, contract or other self-employment because of the lack of job opportunities,” said John Walker, an EA at J. Walker & Co. LLC, in Concord, N.H. “These are often professional, technical or managerial people who’ve been laid off, downsized or their industry has simply collapsed or moved offshore.”
“The advice that we give usually has to do with being self-employed for the first time in their lives,” said Steven Hanson, a CPA with Minnesota-based Piehl, Hanson, Beckman PA and president of the National Society of Accountants. “Discussions of the applicable tax laws, recordkeeping, estimated tax obligations, what is deductible and what is not, things like that.”
New worries
“Their No. 1 concern is trying to make some money,” said Walker, “but they’re unprepared for and often overwhelmed by the recordkeeping necessary for any self-employed person. It’s part of any business but one they usually didn’t have to deal with. Their prior employers had accounting and HR departments to handle all that detail stuff.”
Hanson said such clients’ concerns are twofold: “First, if this is their main source of income, can they make enough to make a living?” he said. “This is first on their minds if they have no other source of income or if they have left a more secure position as an employee. The other concern most have is, how do they get started, do they need ID numbers, registration or some obligation, and then just how to keep track of their income, expenses and other reporting or record keeping obligations.”
Another group
Contract workers also come from other demographics. Cynthia Jeanguenat, EA with Horizons Unlimited Tax & Business Services in Virginia Beach, Va., has a few clients working as independent contractors after retiring from previous jobs.
“I advise them the same way as other new business people: how to keep records, what type of tax entity they might consider, what are the filing requirements and licensing procedures, will they be hiring employees or other independent contractors, and the like,” she said. “I also talk to them about contributing to a retirement plan like a SEP IRA, for example.”
“Since they’ve been an employee nearly all of their working career, the challenges of being an independent contractor are somewhat frightening to them,” added Delmar Gillette of Delmar C. Gillette Economic Planning Services Inc. in Newport News, Va. “What about Social Security taxes? What expenses are part of their tax return? ‘What do you mean I have to make estimated payments?’”
For perhaps the first time in their lives, these clients get letters from the IRS saying they’ve under-reported income or overstated deductions -- frightening and confusing and swiftly draining the fun out of what clients hoped was going to be their financial salvation.
“The clients in this age group are concerned about doing everything right and staying out of trouble with any taxing authority, so it’s important to provide them with the right information because they generally don’t like paying large amounts of money at tax time. We also calculate quarterly estimated taxes for them if needed,” Jeanguenat said.