It's just that Little found himself working harder and longer, with diminishing returns. It was a business model, he decided, that was neither helping him nor his clients. "I was managing the money behind the scenes, and I was lucky if I could talk to a client annually," Little says.
It was then that Little decided to transition to a fee-based business. The process began two years ago, when Wall Street Services became a registered investment advisory firm. Then, a year later, Little began the process of lightening his client load.
Since July 1998, the firm's client list has gone from 1,242 to 98. The firm now charges an annual retainer fee amounting to 1.09% of assets under management. The firm has $130 million of assets under management. As a result, Little has seen his annual gross revenue jump from $388,000 in 1998 to $1.4 million in 2001. "I basically started over," Little says.
Only 17 of his original clients remain with the firm. And although the firm's minimum annual fee is $9,000, the average client is paying a fee of $14,000. With a renewed focus on financial advice, Little is now in contact with clients on the average of 8 to 10 times a year. Yet he has been able to reduce his staffing level from 11 to 3. "I wanted to create an environment where I can speak to all of them regularly," he says.
Little has three rules when it comes to clients. First, he says, they must be "financial delegators" who are comfortable with someone else having discretion over their accounts. Second, they have to be willing to place all their transferable assets in the hands of the firm. Finally, they need to be comfortable with the firm's fees. "Getting the expectations clear up front is a big deal," Little says.
The formula has been so successful that Little plans to stop taking new clients after signing on client No. 100. "I feel sorry for advisors who have been focusing their practices on investment returns and all the things that clients are getting nervous about right now," he says.
Growing A Business
Unlike a lot of other advisors who have found success emphasizing the planning side of their businesses, John Smartt has stuck to what he knows best: asset management.
"I've been interested in investments for 50 years," says Smartt, a CPA who owns and operates Financial Consulting & Administration in Knoxville, Tenn. "My first eighth-grade term paper was about the stock market."
Smartt is an unabashed conservative investor-a disciple of John Bogle who relies chiefly on Vanguard index funds to keep his client portfolios steady in good times and bad. He also knows that the low cost of index funds, combined with his below-average fee of 50 basis points on assets under management, represent a significant savings for his clients. He extends this low-cost philosophy to his own services, even throwing in individual 401(k) management as a free add-on. "What I have taught my clients is that costs are very, very important," he says.