You, too, can use Cheryl Holland's practice idea.

Providing financial planning services for middle-income clients has become a hot topic and an even hotter market during the last few years. Thanks to a handful of trailblazers like Sheryl Garrett, founder of the Overland Park, Kan.-based firm Garrett Planning Network Inc., the advisory profession has learned that a business model exists from which to serve these clients. Going on 200 planners have joined the Garrett Planning Network, with new members signing up every week.

The interesting thing about middle market planning, from a practice management standpoint, is that no one thought it could be done profitably. Most of the profession-on the independent RIA side, at least-believed that an advisor had to target semi-affluent or wealthier clients to make any real money in this business. Now we know that's not the case. For advisors, there are more choices as to what market they can target and, therefore, more alternatives for developing the style of practice that will best complement their desired lifestyle.

If you've already created a successful practice aimed at affluent clients, there's probably not much incentive to serve the middle market. But it's easy to forget that you do this on many occasions anyway, whether you want to or not. Clients make referrals, and they're not always to affluent prospects. Instead, they entreat you to work with their sons, their daughters, or their relatives or their friends, and so often these folks don't meet your minimums. Yet, you don't want to offend your client (nor cause her to think she should no longer make any referrals to you), so you accept these referrals, sometimes against your better judgment.

One school of thought says you should think about hiring an individual whose sole job is to serve these clients, but that's not always cost-effective because you may not be able to keep that person employed full time. Instead, thought Cheryl Holland, owner of Abacus Planning Group Inc. in Columbia, S.C., why not create an independent contractor relationship with an existing middle-market planner? She did, it's working, and it's not that hard for you to do the same thing.

Having started Abacus six years ago after an eight-year stint partnering with another advisor, Holland has grown her firm to 11 employees including herself: three for office management, operations, marketing and client service; three on her investment team, which consists of a CFA, a new CFP and another individual taking the CFA courses and acting as her portfolio administrator; three on her financial planning team (CFPs or CFPs-to-be), and one person who's a jack of all trades.

With this employee base, she provides comprehensive, fee-only financial planning and investment management services to owners of closely held businesses or individuals with portfolios of $1.5 million and up. The firm charges first-year fees of $5,000 to $25,000, while ongoing clients pay annual planning fees plus 60 basis points-a percentage that graduates downward on multi-million-dollar portfolios-for investment management services. These are clearly not middle-market clients.

Holland was plagued by a sporadic but steady stream of sub-optimal prospects coming through her door until she contacted Ed Powell, a local Garrett Planning Network devotee, to see if he could help. What evolved from that point forward was a unique working relationship. "I had referred clients to Ed prior to the arrangement we have now," says Holland, but that wasn't always ideal because clients wanted Abacus to serve those they referred. With barely three years in the planning business, Powell was an unknown quantity compared with Holland and her higher profile in the community.

The answer? Holland invited Powell to work in her office, and much of their relationship now takes place on a bartering basis. "Ed works with my clients' children in exchange for the space and other services we provide him," explains Holland. Other services might include Powell's use of the Abacus conference room when he meets with his own clients. Says Holland, "Ed spends perhaps five hours a month serving our clients, so I'm saving 60 hours per year of my own time and now I never have to talk to prospects who would be unprofitable for us."

The personal side of this relationship seems to work as well as the business side. "Ed fits in well with the culture of our firm," says Holland, "and although we don't see eye to eye on everything, I like that he's committed to his own decision-making process."

But that's not all there is to it. There are some interesting nuances to consider. For example, when Holland gets in a prospect data form, or her intake person is talking on the phone with a prospect, she tells them that they will review the prospect's circumstances and decide whether he should work with Holland or Powell. Such calls might come from one of Holland's neighbors, or perhaps a member of her church,"someone to whom I can't say no," explains Holland.

At other times, when a prospect meeting has been scheduled but Holland's not sure what type of service the prospect needs, both she and Powell will conduct the client's first meeting together and they will all decide, then and there, who the client is going to work with. "In those scenarios, we're very frank that Ed's a CFP with a different [service] philosophy, and that he's independent. We each represent to the prospect our different ways of planning, and the prospect decides." Adds Powell, whose own firm is called simply Powell Financial Advisors, "Sometimes people may not want to pay Cheryl's fee, or don't feel they need her level of service."

What might Powell do for the prospect? "I am happy to work with a client on an as-needed, hourly basis," he says. On the other hand, if the client needs more time-intensive services or ongoing advice, Powell will also work on a negotiated retainer basis. He does not take assets under management, nor earn commissions from sales of financial products, yet, he says, "I am committed to providing quality financial services to middle-income Americans, not just the wealthy."

If the prospect chooses Powell, they know he's using Abacus' resources and can tap its staff for any additional brainpower he may need. Does Powell pay anything to Abacus for these other resources he uses? "No," says Holland. "We have an agreement we keep an eye on. Ed owes us about five hours of financial planning a month and, in return, he gets his office space, the use of our conference room and all the Coke he can drink."

But Powell does pay Holland with additional services sometimes. "Before I got into financial planning, I spent ten years as a trust officer at South Carolina National [now Wachovia Bank] here in town," says Powell. He's also a commercial real estate appraiser. Says Holland, "We tap him for his specialized knowledge, so we've now got an expertise in-house that we didn't have before Ed joined us," She values this expertise because the firm invests client money in real estate and other alternative ventures, among other reasons.

Powell's stint as a bank vice president was an eye-opener for him. While working in this financial enterprise with ample planning resources and financial talent, he was struck by how many of the employees were doing little to plan their financial futures. "I saw a need and became determined to fill it," Powell explains.

But planning, trust and appraisal work isn't the end to Powell's talents. "I do a lot of things for Cheryl. I might do back-office work, or she may have me make a presentation to a 401(k) group," says Powell. "When we do employee education on clients' 401(k) plans, to tell their employees what's happening with their retirement money, Ed will go along with our investment team members and answer questions employees ask during these presentations," says Holland.

Powell adds, "I'm also helping Cheryl transition to a paperless office by doing some of the scanning or, if everyone in the office is off-site, I might answer Abacus' phones. Even at this juncture, I still have unbillable hours I can use to help her out," says Powell.

Does Holland ever pay Powell? "If he's got free time, we'll pay him to fill in on these kinds of tasks," says Holland. "We must decide whether each job I do is a rent offset, or something I'm going to charge for," adds Powell. His hourly rate when working with his middle-market clients is $100, which he's thinking about raising. But that's not necessarily what he charges Abacus. "If I'm just doing a simple net worth summary for a client, I'll charge a lower rate."

So where does Holland see her relationship with Powell going? "Eventually we might need the space he's in, or he might get so busy he doesn't need referrals from us. But we'll cross those bridges when we come to them," she says. Until then, Holland and Powell both predict their relationship will continue to thrive. Says Powell, "One of the biggest things it's done for me is given me instant credibility in the community." Says Holland, "I'm very pleased ... we've had no problems at all."

David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is editor of the Virtual Office News monthly newsletter, and co-author of the book Virtual Office Tools for a High-Margin Practice (Bloomberg Press, 2002), both available at www.virtualofficetools.net.