Middle-income households are growing faster than any other. Now, some smart planners are figuring out how to target this market profitably.

After five years of working with middle-income clients in his city of Bedford, N.H., planner Sam Hull says he is "looking to swim in a bigger pond."

Hull isn't trying to attract wealthier investors with fatter portfolios who will drive more profit to his bottom line. He likes working with the good, middle-class folks of his New England burg just fine. Instead Hull, founder and president of Northstar Financial Planning, plans to grow his practice in the coming year by hiring two to three planners and increasing his volume of clients. The former business consultant says he wants to complement his retirement planning specialty with planners who can target women and small-business owners. The firm already serves 60 clients and manages $20 million in assets.

While hiring advisors might have been a novel idea for solo practitioners with a middle-class clientele just a few years ago, today staffing is becoming a watchword for a small but growing cadre of planners who like profits as much as they like serving the middle market. In fact, we found planners across the country who are determined to stay middle market as they build firms and profitability, using any and all resources at their disposable. Almost without exception, their strategies include adding employees, ratcheting up client volume, increasing fees and heightening efficiency.

Chip Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif., a consulting firm that closely follows the investment advisor industry, says there is a movement among middle-market planners to get serious about increasing profits. "More of these folks are starting to realize they don't want to accept the limits of a small lifestyle practice, so they're determined to find ways to grow," Roame says. Increasingly, their strategy involves hiring paraplanners or junior planners who allow a principal to expand clientele and thus the firm's profitability, without taking on the expense of hiring partners.

Today, there are about 24 million middle-income households with between $100,000 to $1 million in investable assets. Of equal importance is the fact that the number of these households is growing more briskly than any other group of investors, Roame says. "These are the baby boomers, and they need advice," the consultant adds.

There may be lots of them, but middle-income clients tend to be less profitable. Tiburon has found that the average fee-only advisor, who tends to have wealthier clients with bigger account sizes than the rest of the planning profession, makes $3,600 from each client and nets about $1,800. In contrast, independent reps make about $1,400 per client and net about $900 from each. Middle-class clients probably net planners less than that, Roame says. "If your clients are smaller and you're earning that much less per client, volume and pricing become crucial," he adds.

Perhaps no one has a firmer grasp of the interplay of these concepts than Sheryl Garrett, who traded in her wealthy-client practice to work with the middle class on a fee-only hourly basis in 1998. Three years ago Garrett launched a network that provides training and a turnkey business model for planners interested in working with the middle class.

More than 150 planners have paid a first-year fee of $5,000 to $6,500 for Garrett's intelligence since the network's inception in 2000. In addition to creating a system that can be cloned, Garrett is also a role model for growing profits and adding clientele in her own middle-income practice. She does it by leveraging junior and senior staff.

Today, Garrett employs two paraplanners and a senior planner with whom she shares part of her $180 hourly fee at her Shawnee, Kan.-based firm, Garrett Financial Planning. She typically pays paraplanners $50 of the $180 per-hour fee she charges clients. While Garrett is the only face these clients see, the paraplanners create all of the plans and recommendations for her approval. Her senior planner earns two-thirds of the $180 hourly fee and brings in her own clients. "This is a sweet deal for them and me," says Garrett. "When a practitioner gets good at what they're doing, and the demand for their services increases to the point where they can't quite keep up, I recommend that they bring in a paraplanner to do the behind-the-scenes work."

Good paraplanners often evolve into full-fledged planners, who will begin to bring in their own clients. Smart compensation arrangements often mean fee sharing that leads to greater profitability for the firm overall, Garrett says.