In 2010, I wrote an article entitled “You Deserve a Fiduciary Standard of Care” in which I advised consumers not to accept anything less than a fee-only fiduciary.

In June of 2016, someone by the name of Robert read this article, became interested in our services, and then realized that he did not meet our minimum account balance required to be a client.

Robert sent us a message where he asked, “How much wealth must a person have to ‘deserve’ a fiduciary standard of care?”

Ouch.

We had been struggling for years with how we could help or where to refer people who could not afford our services, and Robert’s email was yet another sign that we needed to do more.

Our comprehensive, integrated, and personal financial planning is unfortunately rare in the financial services industry.

However, comprehensive wealth management like that takes time and money to provide. We have always challenged ourselves to do whatever our clients would do if they had our time and expertise, which is why our list of services is extensive and ever expanding. For example, our customized tax reviews take at least three to eight hours, and those reports are just the start of the service. The review often results in new capital gains management plans which involve a year of intentional trading, customized Roth conversions which involve extensive paperwork and accounting, strategies for charitable giving which involve meticulous paperwork and valuations, and even more services too numerous to name.

Robert correctly identified that “our firm [was] equivalent to a ‘concierge medical practice.’ ”

We have had the good fortune of many wonderful clients. Often they are readers of this blog who can see how our team is expanding the knowledge of the financial planning profession and want that care and attention to detail to help their own circumstances.

Over the years, our demand sometimes out paced our capacity. Finding excellent staff and training them in our methodology requires its own time and effort. As a result, we gradually raised our minimums to limit the demand for our services.

It hurt that for years the commission-based salesmen in town would use this in their own sales pitch. They’d say things like, “Well, Marotta won’t even talk to you unless you have $1.5 million.”

The commission-based world can afford to take on smaller net worth clients because once they make the initial sale, they get a revenue stream for years without doing any real financial planning.

We were much more helpful to smaller net worth clients than these criticisms in multiple ways.

First, I have met with hundreds of families pro-bono to give them a couple of hours of free financial planning advice even though we cannot take them on as clients. For families who are just starting out, this advice is critically important. They often don’t have the time to read everything we write nor do they fully understand how to apply it to their own circumstances. The wisdom from these meetings often finds its way back into additional blog posts or into collections of blog posts to help people read the most important articles on a specific topic.

Second, in 2011 we began publishing our Marotta Gone-Fishing Portfolios. In subsequent years, we expanded those portfolios to include custodian specific asset allocation recommendations by age. These portfolios, all with extremely low expense ratios, were our answer to those who otherwise would seek investment recommendations from a commission-based mutual fund salesman. We know that these portfolios are widely utilized by the number of emails we receive in January asking when we will be updating them for the new year. (FYI: We generally aim to update them in February.)

Third, we have no secret ingredient at Marotta Wealth Management. We openly and publicly publish our strategies as articles on our website. We strive to provide the necessary resources for anyone to prepare their own investment plan and meet their financial objectives.

Decades ago, even before I was a financial planner, I attended a NAPFA conference with my father, George Marotta. In one of the seminars another NAPFA presenter was asked what he did for advertising and he said, “I give everything I know away freely. I don’t have any secrets. If people like the advice they hear, some of them will want you to help them manage their finances and others will be better equipped to do it themselves.” And that is what we have tried to do here on Marotta On Money.

Most financial firms get about two-thirds of their clients through client referrals and one-third through professional referrals such as CPAs or estate planning attorneys. We don’t. While we appreciate referrals from clients, CPAs, and estate planning attorneys, nearly all of our clients come to us after reading our articles and appreciating our approach to financial planning. We don’t pressure clients for referrals nor do we believe that clients want to be pushing our services on their friends and family. Instead, we simply strive to provide excellent financial wisdom free of advertising or sponsored content.

While all of these efforts were good, they did not fully answer Robert’s underlying question: Must our firm always send those who are just getting started to some other firm?

While I replied to Robert at the time and told him how we tried to service those under our minimums, we took Robert’s criticism to heart.

We don’t take any course of action lightly. I know serving the mass markets is an entirely different business model than we had been doing before. While nearly everyone needs investment management, nearly everyone also has questions that are personal and specific. Our normal method of providing highly accurate, specific, custom-tailored advice and implementation does not work as a business model when the client is paying very little.

In his email to us, Robert set the bar surprisingly low. He wanted to know what fiduciary firm “offers a more impersonal, low-touch, cookie-cutter, more bare-bones approach to financial planning and advice.”

In 2015, a year before Robert’s email, we wrote a series of articles about Schwab’s Intelligent Portfolios so-called robo-advisor (which is really a robo-investing service). As we said then, “Robo-advisors could be wonderful,” but additional work and thought was necessary to supplement Schwab’s technology and programming to better help clients.

Then, just recently Schwab opened an Institutional version of the Intelligent Portfolios which provides advisors with a larger set of funds, options, and capabilities. These changes have helped us to solve many of the criticisms we had with the retail service.

This new service has enabled us to lower our minimums to zero and provide a fiduciary standard of care for everyone. Our goal with this new service is to be able to provide basic investment management services for a highly discounted fee.

The result of that work is what we call our “Do-It-Yourself” service level. It has a lower annual fee and no minimums. Basic services include asset allocation design and portfolio management using Schwab’s Institutional Intelligent Portfolios, an automated investment management platform. You can read about the Do-It-Yourself service level and compare that service offering with our other service levels.

For our “Comprehensive” service level, our fee begins at 1% annually for assets under management. While we believe that we earn that fee on our investment management alone, I’ve often estimated that investment management may be 40% of the benefit we bring and everything else in comprehensive wealth management may be 60% of the value. Other so-called financial advisors often charge 1% or more (plus hidden fees!) for nothing more than investment management. Meanwhile, we provide investment management in addition to bespoke financial planning.

After much debate, we decided for our “Do-It-Yourself” service level to charge just 0.40% annually of invested assets (0.1% a quarter). I believe we are among the best investment advisors, but we also wanted our offering to be obviously better both in price and quality than other advisors. And while some additional services are available for an additional charge, we are hoping that clients will be able to read our blog or follow instructions from an exclusive newsletter to handle these on their own.

While our minimums for this service are zero and any small amount of money may be invested, according to Schwab’s requirement, $5,000 is required before an account will begin automatically rebalancing.

Just to be clear, an account with $5,000 would be charged 0.1% per quarter. That means the program would cost just $5 per quarter which is $20 a year.

In our “Comprehensive” service level, we continue to strive to do whatever our clients would do if they had our time and expertise. This means providing all of the financial services listed on our Services page as well as researching, analyzing, and answering in a customized manner countless other financial planning questions and decisions the clients may ask or need answered.

In contrast, clients at the “Do-It-Yourself” service level are asked to follow our articles or instructions on their own, navigating many aspects of financial planning in this manner. As a fail-safe for those who need additional help, we offer personal advice and services for an additional planning fee. Do-It-Yourself clients may also email us questions (as any reader can) as suggestions to us for future article topics which we may research and write for them. However, we are counting on clients to do as much as possible on their own.

Recently, I was meeting with one of our “Comprehensive” clients. At the beginning of our meeting, I mentioned that we had been working on a “Do-It-Yourself” level of service for people who did not meet our minimum and who could not afford our comprehensive services. He expressed interest in getting one of his children in touch with us now that we could handle smaller clients. The meeting was a personal two hour meeting with two advisors in which we covered several components of our comprehensive services each integrated with the others and tailored to the client’s specific situation. After each agenda item, he commented, “You don’t get that for 0.4%!” I was glad to know that our existing clients understood the difference and appreciated the value that they would continue to receive.

We strive to be completely honest about the pros and cons of our services. Our “Do-It-Yourself” level of client services is just that: a do-it-yourself program. Clients open their own accounts online, transfer funds, set beneficiary designations, and manage cash flows with the help of our online tutorials.

We believe that this Do-It-Yourself program provides excellent portfolio management, but it is not intended for clients who cannot do some things themselves.

Many of our articles end with, “Give us a call to get started with your financial planning today!” but the Do-It-Yourself program does not begin with a phone call or even an initial meeting. Prospective clients get to know us by reading our articles and watching our videos. Whenever you are ready to begin investing with us, you start by opening a Schwab Institutional Intelligent Portfolio and entering Marotta Wealth Management’s Advisor Program Key.

After that first account is opened, you have officially begun the process as a Marotta Do-It-Yourself client.

Before I end this article, I wanted to include my original email exchange with Robert for three reasons.

First, to show the need for companies to constantly change and evolve. Not every criticism needs a company response, but if companies don’t adapt to the marketplace, they will be over taken by companies who do change and adapt. Had Amazon continued just selling books they might be out of business today instead of being a nearly trillion dollar company. Smart companies know when one email represents hundreds who did not take the time to communicate.

Second, I wanted to show the power that a single person can have. I often take the time to write to a company or business owner honestly about either what they are doing well or where they could improve their customer experience. I hope that they appreciate receiving the information, although perhaps only one in ten appreciates feedback as much as our firm does.

And finally, opening our services without any minimums is a milestone for our firm and I wanted to save the correspondence for our firm culture and archives.

So here is Robert’s original email on June 16, 2016:

Subject: How much wealth must a person have to “deserve” a fiduciary standard of care? 

To Mr. David John Marotta,

I was initially impressed by your unequivocal statement “Don’t accept anything less than a fiduciary standard of care.”

However, I then further researched your firm and learned that your firm focuses on serving individuals with “least $1.5 million in investable assets.”

Therefore, I now understand what you and your firm is stating is that individuals with at least $1.5 million in investable assets deserve a fiduciary standard of care. Everyone who does not have at least $1.5 million in investable assets (outside of their ERISA-governed retirement accounts) either don’t need or can’t afford the services your firm provides.

Am I understanding what your firm stands for correctly? If not, have you or your firm addressed this topic (what should people your firm does not serve – the vast majority of Americans do to seek a fiduciary standard of care) in one of your blog posts? If so, can you send me a link to that blog post?

I hope the answer is something other than seek out a “fee-only advisor” other than your firm which offers a more impersonal, low-touch, cookie-cutter, more bare-bones approach to financial planning and advice.

In short, is it accurate as I have been told that your type of firm is equivalent to a “concierge medical practice” offering primary medical care?

Robert

My reply on June 17th, 2016:

Greetings Robert,

Great questions. As you can see from our fee schedule we have three potential payment methods, (1) as a percentage of assets for those with at least $1.5 million, (2) as a flat retainer fee for those below that, and (3) as an hourly charge for non-managed accounts. All three are legitimate ways that fee-only fiduciaries get paid and we try to fit the right fee to each potential client. We also try to recognize if the value we would bring a client is less than the fee we would have to charge.

We believe that much of our advice saves more than we charge for large accounts. For example, if we save even 2% after tax and only charge 1% the client gets a net 1% benefit. If we charge 1% on $1.5 million that might mean a quarterly charge of $3,500 and a net savings to the client of even more than that. And they might also gain from delegating the work to us and also appreciate our financial advice on many other matters.

On the other hand, serving a $150,000 client might only earn $350 a quarter at a 1% charge. Depending on our costs of labor the delegation to us to do the work only makes sense with a certain minimum charge.

While it doesn’t make sense to pay us $3,500 to save $700, it might make sense for you to do that work for yourself.

Consequently, we also give a ton of information away for free. Our approach is to try to take the time to educate in a simple and easy to understand method some of the most complex techniques and calculations in financial planning.

If all you need is an asset allocation, we give those away for free. We have many people who follow our advice and never pay us anything. And we have no secret sauce of advice that we don’t publish on our websites.

You can also go to Napfa.org and screen NAPFA members by their method of payment or for their account minimums. There are fee-only fiduciaries who keep things very very simple and charge a lot lot less. We highly recommend finding the NAPFA members in your area as they are all fee-only fiduciaries. For clients for whom we are not the best match we have several NAPFA firms in the central Virginia area to whom we refer people.

The way we think about it, with $250 million under management if we can save our clients even ten basis points (0.10%) that is worth a quarter of a million dollars to our clients. Other NAPFA members specialize in good-enough for small amounts of savings and we specialize in finding every possible benefit to our clients.

I may take the time to write this up as an article, but before I finish this email, what city are you located in and what financial planning questions are you seeking advice concerning. We may be able to help for free, or we may be able to help you find a good match for an advisor.

Regards,

David John Marotta, CFP®, AIF®

Although Robert did not take us up on our offer of free advice nor did he reply, he helped inspire us to reduce our minimums to zero.

Thank you, Robert, for your email and your readership. I hope that everyone enjoys our new “Do-It-Yourself” service level.

Photo by Alasdair Elmes on Unsplash