As every professional advisor knows, millions of retirees and preretirees have been tending their own nest eggs in recent years. After all, when an unmanaged index of 500 of the best-known businesses in America returns more than 20% a year, who needs a highly compensated advisor! Anybody can do this, right?

And for a long while, it was beginning to seem that anybody could do this. Dr. Jones figured that if he just socked enough cash into a large-cap growth fund every month, in a few years, he'd be trading his stethoscope for a fly rod. Most advisors who've been around the track a few times approach the stock market with a little more caution than Dr. Jones. Over the course of about 9,600 market sessions, I have come to know Mr. Market up close and personal, and I have grown to realize that he is not the sort of fellow who routinely doubles people's money every four years without exacting a price.

In March 2000, the piper finally piped. Since then, it's gotten a little tougher to make money, and it's been upsetting for folks who came to regard the Vanguard 500 Index Fund as a high-yielding passbook account. And quite naturally, this past year of stress has motivated a lot of people to look into the possibility of hiring professional assistance ... just in case. I know my office has scheduled an unusual number of inquiry meetings lately. But I have noticed that a fair percentage of these people, especially recent retirees, have left our complimentary session without deciding to hire us. So, I've been reliving some of these sessions with prospective clients in an effort to understand why I have been less convincing than usual in presenting the value of our services.

A Retiree Looks At Cost

Cost is always an issue, of course, but for retired investors who've been flying solo, it can be a formidable obstacle. I have come to accept as reality that a retiree who has been enjoying high investment returns without any professional assistance often will balk at the notion of paying thousands of dollars a year to a financial advisor. Every prospective client wants to see a clear and convincing case that the cost-benefit relationship is in his or her favor. The reason this value is difficult for us to demonstrate, of course, is that an advisor's services will be rendered in the future, and the benefits are still unknown!

In addition to the practical difficulty of placing a value on an uncertain future benefit, there is another issue I sense sometimes in presenting our case to retired professionals. It has to do with my being well paid, while they are no longer being compensated for their professional skills.

Anyone who has worked for money knows that a paycheck serves two purposes: it puts bread on the table, and it provides a reminder of your worth to others. Retirees may have enough pension and investment income to provide all the bread they could possibly want, but sometimes they miss that reminder of their own value. More than a few retired prospective clients, even without being aware of it, feel a little inadequate when they imagine that the advisor is earning a hefty paycheck, and there is a little competition thing going on. The advisor ignores this at his or her peril.

And, of course, there is also the issue of budgeting. Most of our retired clients did not budget in the traditional sense during their working years. But they are much more aware of how they spend their money now than they were when they enjoyed high professional incomes. In presenting the case for hiring our firm as their financial advisor, I am learning to be sensitive to the idea that a five-figure annual fee may be modest as a percentage of their portfolio, but it can be formidable in relation to their annual living expenses. The reality is that retirees tend to look at our fees this way, and if I do not address it from their perspective, they may be unable to make the decision to hire us.

A Communications Challenge

Sometimes, a retiree comes to see me, and I realize after 15 minutes that I really cannot help him. A recent case comes to mind: A man in his seventies had $3 million, still controlled a small family construction business, didn't like his children who ran it, lived on Social Security in the same row house he bought 50 years ago, had no personal interests and no charitable inclinations. All he wanted was high investment returns. I asked the fellow not to hire us.

But other times, an interview will go on for two hours, the chemistry is great, I see lots of planning areas in which I can enhance the people's lives, and the changes that need to be made in their portfolio jump right out at me. When I lose the chance to help these kinds of people because I have not convincingly presented the case for the value of our services, I feel very frustrated. The problem really is not cost, but communication, and the burden is on me to fix it.

So, here are the challenges as I see them: One, how can we rationalize a known cost with an unknown potential benefit? Two, how do we diffuse the competition thing? And three, how do we frame the affordability issue? I have made a checklist of 10 concepts that I think will help self-directed retirees decide to engage our services. If we can get that far together, it will be up to me and our excellent staff to take such good care of them that they never again will be concerned about costs. Here's my list. You may want to use it as a springboard to create one that reflects your own practice style.

I agree with you (Mr. and Ms. Prospective Client) that our annual fee is a lot of money. And because it is, we are very motivated to see that you remain a happy client. Whenever you have a financial question or concern, we want our office to be the first place you call, because the more helpful we can be, the happier you will be that you found us! Whether you are thinking of buying a vacation home or making a big gift to your children, we will think it through with you and help you weigh the tax aspects and the long-term effect on your financial security. We are in your corner every day. How do you put a price on that?

You have done a really good job of building your nest egg, and you deserve a lot of credit for that. You'd be amazed how few people have the discipline and the wisdom to save and invest for their future the way you have. Now that you will be relying on your portfolio, it makes sense for you to hire a good advisor whose skill and experience can enhance and protect the financial security that you have built.

I know it is self-serving to say this, but we believe we are really good at what we do. Our training and experience are world-class, and we are careful, disciplined and even creative, whether we are building your portfolios or offering suggestions for minimizing taxes. And it is true that we are well paid for our work. But when you think about it, do you want your advice to come from a trainee or from someone who is already financially successful?

I wish I could assure you that we will earn your fee several times over just from excess portfolio returns. But the reality is I do not know what your investment returns are going to be, especially in the short run. However, I am quite confident that we can reduce the anxiety you have been feeling by listening to what you want out of life and by taking a patient and disciplined approach to investing your money so you can live your dream.

One of the things we enjoy most about our work is teaching our clients about investments; we have had clients tell us that the education alone is worth the cost of our services. You'll receive regular written communication from us about developments in the economy and the markets. We put a lot of effort into these reports, and our clients really look forward to them. As you grow in understanding of your investment strategy, you'll feel less anxious and have more of a sense of control over your financial life.

In all the years we have been preparing comprehensive financial plans, I have never had a client say, at the end of the process, that it was not worth every penny. If someday a client is not satisfied, then I will have to say that one client was unhappy, but that still will be a very good track record, don't you think? I am so confident that you will be pleased with the value of our planning that our written agreement says you do not pay us the second half of the planning fee until it is finished to your complete satisfaction.

The breadth of the financial care that we provide to our clients is rather unique. We realize that this level of service is not appropriate for every family. Yet for those who can enjoy the benefits, our experience has been that our client relationships are enduring and mutually satisfying. We are very proud of the fact that from year to year, we retain about 97% of our clients.

Our retainer looks like a money-management fee because we base it on your portfolio. But our service is much broader than that. We will manage your investments within the context of your financial goals and consider all the resources available for reaching those goals. Your portfolio mix will not be like anyone else's; it will be unique. And during your first year with us, we not only will develop a productive portfolio, but we also will review your insurance needs, look for tax-saving opportunities, take a detailed look at your likely cash flows over the next 30 years and work through all the personal and tax issues having to do with helping your children and grandchildren.

Even though we have structured this firm to provide all this depth of service, our retainer fee percentage actually is lower than fees typically charged by traditional money managers who do not know you personally or understand your goals, your tax situation or your tolerance for risk. We can do this because we specialize in serving people at the retirement stage of life. We take time to listen to what is important to you, and we understand because we work with issues like yours every day.

If you like what you see so far, maybe the easiest way to get us on your team is to think of it as a one-year assignment. We'll get your portfolio shaped up for the future, clarify your cash-flow outlook and pull together all the loose ends of your estate and tax issues. You certainly won't have any misgivings about value the first year! And our written agreement gives you the freedom to resign any time you like. It's written that way because that's how I would want it if I were the client. But I have to warn you, once you become a client, you'll never want to leave. You are going to love us! And we will love working for you, for a long time.

J. Michael Martin, JD, CFP, is president of Financial Advantage in Columbia, Md.