Many individuals, especially after graduating college have an enormous amount of human capital but very little when it comes to financial capital and investable assets. A common question or concern may be that they are of little interest to financial planners because they don’t have any investable assets or wealth. Let me say that this is both correct and incorrect thinking – depending on the financial planner – and just as important; how the financial planner is paid.
Let’s start with the correct version first. Financial planners are paid in a number of different ways from commission, fee-only and fee and commission. Focusing on fee-only planners for a moment, these planners may be compensated by the hour, retainer, or as a percentage of assets the planner manages for the client. If a fee-only planner is only compensated by assets under management, then the planner may not be interested in helping individuals that have no assets to invest. Thus, the client would be correct in thinking that they are of little interest to that particular planner. This is assuming, of course, the client understands the differences in how planners are compensated.
If we look at the incorrect version, the client is incorrect because they may be able to find a planner that can assist them, but whose planning and help for the client can be charged by the hour, or retainer (e.g. monthly). In this example, the client can receive excellent planning and advice, and not have to worry about satisfying a specific asset or net worth minimum.
I think it’s fair to state that planners that have minimums aren’t wrong in doing so. It simply means they have a business model that works for them based on specific goals for their firm and economies of scale. Additionally, AUM clientele and high net worth individuals are a specific market that may be best served by firms with AUM minimums.
However, for individuals starting out, and potentially reading this post, with little no financial capital and net worth but are interested in a plan to get to that goal, firms with hourly charges or retainers may be a great fit – while still getting expert, fiduciary advice.
Sterling Raskie, MSFS, CFP®, ChFC®
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Very interesting read even a year out. Thanks for posting this article!
You’re welcome! Thanks for taking the time to read.
I have to agree that it’s tough, if not impossible, for people fresh from college to get a financial planner. However, while it is almost a necessity to get a financial planner nowadays, it’s equally important for people to know how to manage their finances. There are a lot of blogs and audiobooks from reputable organisations that people can learn from. It is also advisable to make the most of the human capital that fresh graduates are in abundance of. Get a side job here, spend a few hours of your weekends there, and in time, you’ll have enough savings to plan with.
Hi Jim
You certainly make sense in your post. Hailing from Australia, our financial planning industry is going through a huge metamorphosis from a trailing commission model to a fee for service model. Sadly about 80% of the industry was (still is) controlled by just 4 banks and one financial services company. Subsequent government inquiries have shown these industry participants to have been focused purely on fees and to have acted in anything but a fiduciary way.
A person with no assets fronting a financial planning during this period would have been shown the door before they had even sat down, such was the aggressive sales culture surrounding financial planning. With the recent transition to fee for service model, the opportunities are there now for all manner of clients to get advice with no minimum asset amount.
I would though add that it is indeed prudent for any person, regardless of age to build their own investment knowledge, so that when visiting an adviser there would be a far greater partnership and joined decision making. Financial planners do many more tasks than just investment advice but it is this particular area that creates the most friction between adviser and client.