"Most of us need advice that is objective-from an advisor who receives no sales commission and thus has no incentive to push particular products-and tailored to our individual goals. Retirement plans must include such advice for everyone who signs up."

-Roger W. Ferguson Jr., former vice chairman of the Federal Reserve,
president and CEO of TIAA-CREF and a member of President-elect
Barack Obama's transition economic advisory board.

If a family has a mere $50,000 or $100,000 in the bank, where do they go for financial planning?

In the "old days," you didn't have much of a choice. You went to a broker or insurance agent. In fact, wirehouses once boasted that they were the only ones serving the middle class, since independent financial advisors, by contrast, only wanted to work with high-net-worth clients. Of course, the "service" that middle-income clients received came with high fees and commissions, so it's debatable just how much real help they were getting from a Merrill Lynch, which also wants high-net-worth clients.

In fact, a source at Merrill Lynch who, for obvious reasons, must remain anonymous, confirms that the firm no longer wants this business. Says this insider, "Merrill Lynch has discouraged us from working with middle-income clients by lowering its payouts. On accounts of $100K or more, the payout is about 40%-45%, depending on the broker's overall production level. The payout for accounts of $50K to $100K is 25%-30%. And for an account of $50K or less, nothing."

Ironically, this has all happened because the wirehouses are trying to follow in the footsteps of the independents and duplicate their business model. Brokers are no longer paid on the number of accounts they open, and commissioned mutual funds don't provide the payouts they once did. Instead, the wirehouses are moving toward the fee-based model, says our source, so it makes less business sense for them to take on smaller clients. "A $200K client is almost the same amount of work as a $2 million client, so why would I even want to work with the smaller client?" he asks.

However, a savvy advisor can also see how a 30-year-old client, one who has saved $100K and makes a good income, is still potentially lucrative. "That person will compound, and they'll eventually inherit money, so working with him or her makes good business sense if one is willing to think longer-term," says this Merrill broker. Which is one reason why many brokers are leaving the wirehouses to go independent. "I think we'll see a big defection of wirehouse brokers," he says, "especially from Merrill, where most wealth managers are upset that the company has betrayed their trust by letting Bank of America come in and change the corporate environment that used to favor wealth managers running their businesses as they saw fit. If they stay with Merrill, they may now be forced to sell proprietary bank products."

Amid the shift away from the wirehouses, pockets of independent planners have picked up some of the slack. Financial advisor Sheryl Garrett started the Garrett Planning Network almost a decade ago to show others how to serve middle-income clients. Meanwhile, innovators such as www.MyFinancialAdvice.com want to enlist advisors serving the middle class to its Web-based planning model.

And an even newer group, the next-generation planners, may up the ante further when it comes to grabbing middle-class clients. Michael Kitces, director of financial planning for the Pinnacle Advisory Group in Columbia, Md., and author of The Kitces Report (http://www.kitces.com/what.php), says younger planners are concerned that at larger firms they wouldn't even be able to serve people in their own age and income group. "I'm seeing a strong trend in 'nex-gen' planners serving the middle-income community," he says. "It's not just a function of them wanting to serve the middle class; it's that their friends and others in their networks are the middle class."

Kitces and Pinnacle hope to take advantage of this opportunity. "We've opened a new division within Pinnacle that will target clients in the $300K to $1 million range," he says. (By many people's definitions, this range is the new middle class, even if Merrill Lynch still offers higher payouts for this group.) What Kitces and others are realizing is that this client niche can be served profitably. "Established firms like Pinnacle can be remarkably effective in moving into this space. These firms have lots of infrastructure already, so adding middle-income clients on the margin is easy."

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