NEW YORK — Conventional wisdom holds that it isn’t profitable to work with the low- to moderate-income market, but financial advisers across the country are developing business models that fly in the face of that supposed truism.
NEW YORK — Conventional wisdom holds that it isn’t profitable to work with the low- to moderate-income market, but financial advisers across the country are developing business models that fly in the face of that supposed truism.
“My clients do not have assets but need financial planning,” said Saundra Davis, a certified financial planner at Sage Financial Solutions in San Francisco, who doesn’t manage assets.
“As their incomes grow, they’ll pay more,” she said. “Many of them are young professionals just out of college.”
Ms. Davis’ fee-based practice targets the low-income community. With 75% of her clients making less than $50,000 a year, she charges on a sliding scale between $25 and $250 an hour.
“My business is structured,” Ms. Davis said. “I know how many I can afford to take at [the low end].”
Ms. Davis will take part in a panel presentation, “Paradigm Shift: Serving the Underserved ... and Thriving!” at the Denver-based Financial Planning Association’s May retreat in Galveston, Texas.
Also on the panel will be Louis Barajas. His 17-year-old firm, Louis Barajas Wealth and Business Planning, is located in Santa Fe Springs, Calif. — “in the barrio,” he said.
Many of Mr. Barajas’ clients are among the working poor,
and he serves those who recently were on welfare all the way up to professionals.
A national speaker and a well-known author, he oversees $50 million in assets under management.
Not just poor people
The barrio doesn’t comprise only poor people, Mr. Barajas pointed out.
“There are a lot of people who work in these communities who are professionals — teachers, doctors, lawyers, police officers, judges,” he said.
“Once they see you are coming to do the right thing, [they’ll become clients]. You have no competition in this community,” Mr. Barajas said.
“To [serve this population], you need to be entrepreneurial. We also provide tax preparation ... It’s one of the ways to get [clients] in,” Mr. Barajas said.
“We schedule an hour and a half [that includes] both tax preparation and financial planning,” he said.
The fee ranges from $250 to $350. Mr. Barajas’ hourly fees follow a sliding scale.
Similarly, CFP Tim Clegg’s plan is to provide financial planning services, “in the same way we deliver tax services,” by reaching out to clients of the local IRS Volunteer Income Tax Assistance program. He is the director of the Financial Solutions project in Holyoke, Mass., which he runs in collaboration with the non-profit Solutions Community Development Corp., also in Holyoke.
Mr. Clegg is developing software to automate part of the information-gathering process in order to charge a lower fee, hopefully to be subsidized by local employers who have shown great interest in the project.
“We want to make this work on a $60-per-hour basis,” Mr. Clegg said.
Is this discount financial planning? No, he said, because the target population isn’t receiving complex services such as portfolio management.
“The key to success in this market is aligning yourself with like-minded organizations that see the value of building more financial security,” said Todd Smith, a CFP with Azmyth Financial in Phoenix, who doesn’t manage assets. He specializes in providing financial education workshops and individual consultations to a low- to moderate- income clientele, typically those with annual incomes of between $30,000 and $85,000.
Mr. Smith is developing a partnership with a property management firm that buys properties from financially distressed owners and then leases their homes back to them.
“The firm will be using me to create a financial education and coaching package for the next 12 months, to help the [former homeowners] to get on their feet and buy back their homes,” he said. The arrangement could bring his firm about $100,000 a year, Mr. Smith said.
Daniel Elie, a CFP with Dagel Financial Inc. in Miami, also serves moderate-income clients, mostly with annual household incomes of less than $100,000. His practice is a member of The Garrett Planning Network Inc. of Shawnee, Kan., which is a network of advisers who offer hourly, as-needed financial planning and advice, regardless of income or net worth.
Mr. Elie doesn’t manage assets.
Like other advisers working in this market, he has to be creative. Mr. Elie supplements his income by teaching Series 6 classes and community college courses.
Likewise, he is creative with his fee structure, which is mostly project based. “I meet with new clients, determine the number of hours we’ll need, then I quote a minimum and maximum, typically $750 to $1,500,” Mr. Elie said.
As with his colleagues in the underserved market, a significant percentage of referrals come from other advisers, who send clients who don’t fit into their traditional practices.
“It is not easy,” Mr. Elie said. “It has to be a personal commitment” — a sentiment echoed by other advisers.
“We’re trailblazers in an industry that is very hostile to what we do,” Mr. Elie said. “Commission people don’t look at us nicely and block our access [to potential client pools] both directly and indirectly.”
