How Much Time Does A Big Time Investment Firm’s Financial Consultant Devote to Your Account?

Most financial consultants that work for a large global investment firm need about U.S. $50 million of assets under management to make a decent living in a metropolitan region.

Using this as a benchmark, let’s break down what this figure means to you as a client. It’s highly unlikely that a financial consultant has clients that all have accounts of $1 million or more, so let’s assume that he or she does not accept clients with

less than U.S. $250,000. This could create a hypothetical tier of clients as follows.

20 clients with accounts between U.S. $250,000- $500,000 for a cumulative asset size of $ 7,000,000;

50 clients with accounts between U.S. $500,000- $1,000,000 for a cumulative asset size of $32,000,000; and

7 clients with accounts of U.S. $1,000,000 + for a cumulative asset size of $11,000,000

77 total accounts worth $50,000,000

So it’s fairly reasonable to think that a successful financial consultant has 77 clients with U.S. $50,000,000 of assets under management.

Now let’s calculate how many hours a year this financial consultant will devote to your accounts. There are 52 weeks a year * 5 days/week * 8 hours a day= 2,080 hours a year that he or she will devote to his/her accounts, assuming that he/she takes no vacation or holiday days. Most firms will tell their consultants to spend about 75% of all of their time every day engaged in sales activities. So that leaves 25% of the time for your financial consultant to dedicate to the management of accounts, or 520 hours (2,080 hours * 25% = 520 hours).

Almost all financial consultants place their clients into different tiers depending on how much money is invested with them. The U.S. $1,000,000 or more clients would be “A” clients, the U.S. $500,000-$1,000,000 clients would be “B” clients, and the less than $500,000 clients would be “C” clients. Financial consultants universally devote the most time to the accounts of A clients, then B clients, then C clients. To simplify this example, let’s say that the financial consultant spends twice as much time with his A clients than he does with his B and C clients.

If 520 hours is divided in this manner, his 7 “A” clients each receive 12.38 hours of personalized attention a year, and his 70 “B & C” clients each receive 6.19 hours a year. So on average, as an A client, you would receive an average of 1.5 days a year with personalized attention specifically for your account and as a B or C client, less than a full day a year.

For this level of personal attention you receive from your client, your financial consultant may earn $150,000 to $200,000 a year depending on the payout grid of the firm.

How Much Time Does an Independent Investment Firm’s Financial Consultant Devote to Your Account?

Now let’s consider what an independent financial consultant can do for you. A great independent financial consultant is independent because he or she wants the flexibility to pursue superior returns for you versus being constrained by the payout grids of large investment firms that typically never reward great performance but rather just asset gathering.

Let’s consider this scenario. Because an independent consultant may be more discerning as to who he/she takes on a client, let’s assume that he only takes on 20 clients each with accounts between $1 million to $5 million, with a mean account size of $2.5 million, for the same $50 million under management that we considered under our first example.

20 clients with accounts between U.S. $1,000,000 – $5,000,000 for a total account size of 50,000,000

Now let’s calculate how many hours a year this independent financial consultant will devote to your account, assuming the same conditions as we did under the first scenario. There are 52 weeks a year * 5 days/week * 8 hours a day= 2,080 hours a year that he or she will devote to his/her accounts, assuming that he/she takes no vacation or holiday days. Let’s now assume that since the independent consultant’s operations are much more streamlined and his or her objectives are different, that he spends 70% of his or her time focusing on account management, or 1,456 hours (2,080 hours * 70% = 1,456 hours).

Now all of the independent financial consultants’ clients would be “A” clients so he divides the amount of time spent on each one equally, devoting 1,456 hours/ 20 clients, or 72.8 hours each year to each account. Instead of receiving 1.5 days a year devoted to your account you now receive more than 9 full days a year devoted to your account.

How Much is Independence in the Financial Industry Worth to You?

So how much is this extra devotion worth? Let’s consider this scenario from a U.S. perspective, and you can certainly stretch this analogy to other global markets plugging in the relevant numbers for your market. Most U.S. investment firms tell you to expect about 6% to 8% a year because 98% of the money managers they utilize to manage your money peg their portfolios to the major U.S. indexes. However, for the purposes of our illustration, let’s take what the S&P 500 has returned over the past decade, roughly 9% depending on what start and end date you use.

And even though an investment in the S&P 500, even with the 2006 year-end run, on an inflation adjusted basis would barely be above water for the past 7 years, for the purposes of simplification, let’s ignore inflation for the time being. So let’s assume you receive 9% a year, have a $2,000,000 portfolio and pay your financial consultant 1.80% of assets, or an annual fee of $36,000 to earn $180,000 a year. After five years, net of fees, in a non-taxable account, you would have about $2,826,000 in your account if the fees were deducted at the end of each year.

Now a great independent financial consultant should be able to earn you about twice that 9% rate, an18% annual clip year after year because he or she is spending those extra days maximizing performance versus trying to gather more assets. So let’s say he or she charges you the same 1.80% of fees. After five years, net of fees in a non-taxable account, you would have $4,237,000 or $1,411,000 more than the financial consultant that is the salesman. In fact, even if the independent financial consultant charged you 12.5% of profits, you would still be left with roughly $4,156,000, or nearly the same amount, after five years.

So there’s your answer. With an account of $2,000,000, in five years, a great independent financial consultant could be worth more than a cool $1,400,000 to you. Of course, there are as many horrible independent financial consultants as there are horrible firm-related consultants. So make sure you perform your due diligence. However, if you find a worthy independent financial consultant, look at these numbers again and be willing to negotiate paying more fees for infinitely better returns and ultimately a much significantly greater bottom line.