A few weeks ago, the U.S. Federal Reserve published an update of the long-running Survey of Consumer Finances, and one of the topline findings shows that just over 12% of American families now have a net worth exceeding $1 million.
According to the survey, these new millionaires generally earn between $150,000 and $250,000 a year — an income that is significant but also substantially below that of many established financial advisors’ typical clients.
Nevertheless, responding to a call for comments by ThinkAdvisor, a group of financial planning professionals associated with the XY Planning Network said they see these “mini-millionaires” as a highly attractive client group, even if they don’t represent the most lucrative potential clients now.
One such advisor to contact ThinkAdvisor was Ryan Johnson, founder and financial planner at Hundred Financial Planning, a registered investment advisor shop set to open at the beginning of 2024. Johnson said his firm is being developed specifically to target this client group, and he offered an explanation of his thinking during a recent interview.
Johnson says his new firm will work best for households that earn at least $150,000 a year but also will have no asset minimums, “so even if they are not in the more-than-mass affluent stage or their dollars are tied up in employer-sponsored plans, they can get the financial guidance they need right now by paying a fee.
“Fast forward five or 10 years, they will have a strong relationship with a planner to help guide them through potential newfound wealth, whether due to business success or inheritance,” Johnson predicts.
THINKADVISOR: Can you tell us a little bit about your background in the advisory industry? How did you come to decide to break away and found Hundred Financial Planning?
Ryan Johnson: Yes, I’ve been in the financial advisor space for about two years now. I’m a career changer, having started out in the advertising and marketing industry.
A few years ago, I was thinking and talking about the idea of changing my career, and my wife pointed out my interest in financial services and how I loved to talk about this stuff with friends and family. It just clicked, and I realized that she was on to something.
Right off the bat, I considered starting my own company. I had gotten exposed to the XY Planning Network folks, and one of them told me, “Hey, you already have a vision for how you want to do things. Why not go for it and launch your own firm?”
Also, another key background fact is that my father was a financial advisor here in Michigan, and I got to hear a lot of his conversations with clients while I was growing up, so I feel like I had a vision of how to do this.
But, to me, it felt like a better choice to first join another established firm so I could get my feet under me. That’s what I did, and I started first as a relationship manager and then moved up to become an advisor pretty quickly.
The firm I am preparing to leave, like many firms, has a target market that is primarily those pre-retirees and affluent people in their late 50s and early 60s. That makes sense, because these people need a lot of guidance and there is a good living to be made in giving them objective advice.
But what I’ve seen in the past two years is that I really like working with those folks in their 30s and 40s — people who are more in my generation, but they might not be hitting the firm’s asset minimums.
One exciting thing that has happened in my time here is that, after I joined, the firm created a monthly payment option in order to serve less affluent clients, and that really sparked my interest as a basis for building my own firm.
So you are setting out from the beginning to take a different approach to client selection and compensation?
Yes that’s right, and it speaks to some of the datapoints you raised originally.
In my time as an advisor, I’ve spoken with many young professionals who are seeing their incomes grow at the same time they are starting a family and just thinking more about their long-term financial future. They might be making $150,000 or $200,000 a year, and their wealth is growing strongly, but they are just terrified of making decisions about how to manage their expanding wealth.
The conclusion I have come to is that, even though they aren’t highly affluent yet, these people are more than happy to pay someone to help them achieve peace of mind. As the advisor, we can deliver a lot of value in this segment, too.
Another key recognition I have had is that, for a lot of these folks, it may be a while before they have legitimately complex financial planning needs. Perhaps they just have their house, some debt and their 401(k) portfolio to worry about, but it feels like a highly complex and sensitive time for them.
So, that gives me the conviction that I can serve these people well and get them set up with a good plan, but it won’t necessarily require an immense amount of time per client. That’s why the model I am setting up is really based on quarterly touchpoints, complemented by in-person meetings twice per year.
I will also add that I have a strong conviction that the investment allocation piece of the advisory relationship is very important, but it’s probably going to be less important for long-term financial success compared with the broader financial decisions you make year in and year out. That’s what I am here to help with.
The robo-advisor platforms can do fine for the portfolio, but how do you coordinate retirement savings, your kids’ education, your cash flow and your debts? What do you do with the dollars that you have coming in right now?
Do you worry that you may be giving up additional potential compensation by planting your flag so firmly in this “emerging wealth” niche?
Let’s be honest about the compensation discussion. To begin with, yes, I have friends in the advisor industry who are doing things the traditional way, and they are earning a very good living doing so. That’s great, but I do plan to do things a little differently.
However, to be clear, my model is not only about flat financial planning fees and no asset minimums. I’ve got a blended strategy where I can also take over direct management of your money for an additional fee, and I expect that will be an important part of making this whole vision work.
I will be telling my clients, “If you don’t want me to manage your money and you just prefer to pay me a monthly fee for my guidance, that’s great. You can absolutely do the work of rebalancing and investing according to my guidance.”
However, the other incentive is that, for every $50,000 the client invests directly with me, I will knock down that management fee, so you can basically pay for my guidance and management with soft dollars coming out of investment returns.
You may be surprised, but in talking with folks in this niche, there is a desire for a soft dollar fees. In rational terms, it really shouldn’t matter whether you are paying hard- or soft-dollar fees, all else being equal, but this is really interesting to see that many people prefer the soft dollar. I think it’s a psychological thing, mostly.
What I’m getting at is that, whatever my flat fee ends up being, it is likely that some clients will pay me more than that, but this blended approach gives me a great entry point for people who desperately want that peace of mind but don’t meet the traditional hurdles for accessing planning services.