Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Retirement Advice for the Non-Millionaire Smaller Investors Can Find Less Expensive Options for Financial Planning

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Retirement Advice for the Non-Millionaire Smaller Investors Can Find Less Expensive Options for Financial Planning

Article excerpt

Although investors with pint-sized retirement accounts often have the greatest need for solid financial advice, the reality is that top-notch financial advice more likely goes to those with at least $1 million to invest.

The reason comes down to pure mathematics, said Andy Rachleff, chairman of Wealthfront, a Palo Alto, Calif.-based asset manager.

Most wealth managers charge clients an annual fee of about 1 percent of assets under management, Mr. Rachleff said. Assuming a talented portfolio manager earns $500,000 a year, he or she would need to attract at least $1 million per client on 50 clients just so the company breaks even on compensation alone.

That break-even amount grows to $1.5 million per client when support staff and overhead costs are included, he said. Factor in a 50 percent gross margin, and a portfolio manager with 50 clients at a top wealth management firm would need at least $3 million per client.

"These are not opinions. These are facts," Mr. Rachleff said. "If I change assumptions on what I expect to earn or the number of clients I can handle, the minimum account numbers change. A junior adviser will accept a lower minimum because his earnings expectations are lower."

But high-end financial advice might not be the best fit for small investors.

Eleanor Blayney, consumer advocate for the Certified Financial Planner Board in Washington, D.C., said advisers who charge 1 percent management fees typically also offer comprehensive financial planning on taxes and estates, which is an expensive service that people with a modest amount to invest may not benefit from as much as high net-worth investors.

"Does it make sense for someone with $300,000 to be working with a high-end adviser?" she asked. "And can they really afford it? The fee may not be affordable in their overall plan. It's not that they don't need advice, but maybe they don't need it at that price."

She suggests that people with smaller accounts could benefit from buying shares in a well-diversified and managed mutual fund, or enrolling in a target date fund that automatically adjust to a more conservative mix of assets as the account owner gets closer to retirement. …

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