With fewer resources than the wealthy, those in the middle market are arguably in a much riskier situation, since they often lack any significant cushion of protection from a catastrophic financial event. Everyone’s financial resources are crucial, of course, but a middle-market family stands to become a less-than-middle-market family a lot quicker if their resources take a hit.
In part one of this month’s roundtable, we talk to three top producers about why they chose to work with middle-market clients and how they've overcome challenges to do it. (For the rest of this roundtable, see part two, Reaching and teaching the middle-market masses, and part three, What's hot in the middle market.)
Q. Can you talk a little bit about how you decided to focus your business on the middle market? Was this a conscious decision, or did your practice somehow gravitate in that direction?
Brian H. Ashe, CLU, president of Chicago-based Brian Ashe & Associates Ltd.: The best reason to concentrate on the middle market is that it is the biggest market. A lot of producers and companies concentrate on the top 15% of our demographics, making the field crowded. That philosophy ignores 85% of potential buyers. There are two other reasons. First, there is safety in numbers. By having lots of clients instead of just a few, you can insulate yourself against sweeping tax law changes that can wipe out a market. Second, our industry needs to serve the middle market better or we may find increased challenges from legislators to our tax benefits.
Robert N. Garneau, CLU, ChFC, corporate registered investment advisor with MassMutual, based in Bedford, N.H. : I focus on the middle market because of where I live. In New Hampshire, most prospects begin in the low to middle market, but fortunately, many gradually become high net-worth clients over the years. Everyone wants wealthy clients, but picking the low-hanging fruit can be very profitable. In 1994, I was fortunate to set up two nonprofit employer-sponsored 403(b) plans, which have become a major part of my business over the past 18 years. They started with less than 100 participants in each plan and not a considerable amount of assets. I was worried I would spend too much time with them and that they did not fit my profile of clients and prospects. The other important consideration about nonprofit workers is that they might not be highly compensated because they care more about others versus income. Many times, they might be a low-to-middle-income earner but they have a spouse who is highly paid. Opportunities arise when their spouse isn’t in the same income bracket, which enables them to give back more than others. I had no idea how big the plans would eventually become. Now, I have more than 1,000 participants, and many consider me their “financial advisor.” Each year, more than 50 retire, which leaves me with plenty of prospects for retirement and estate planning.
Shane Westhoelter, AEP, CLU, LUTCF, president of Gateway Financial Advisors Inc. in San Ramon, Calif.: Coming from a small Midwestern town and a middle-income family, I knew the importance of helping the middle-income market prepare for retirement and crisis needs. Growing up, I watched my uncles, grandparents and parents work hard in factories, on farms — always struggling to try and save for the future. This motivated me to make a difference and to help the middle-class market gain the knowledge and access to financial products and services they felt only the wealthy could afford.
This was a conscious decision. I felt it was an underserved market that truly needed our services, and I knew it was the larger percentage of population, which to me meant more opportunity. I decided to build my practice on the masses, one client at a time instead of going after the “big sale” like many others. It was also more comfortable for me personally. Since I had not come from a high-income family, I could relate to, understand and identify with the middle-class income and families.
Hirsch: What do you find to be the most challenging aspects of the middle market, both in terms of the challenges that your clients face and your own personal business challenges in meeting their needs?
Garneau: One of the challenges of working with the middle market lies in the fact that they do not have a great deal of spendable income for planning. When all of the bills are paid, they have little left to save or spend on protection. They focus on taking advantage of their match in their retirement plan and making sure they leave their family in a better position than they were in. They have similar goals as high net-worth clients, but not the same dreams. They are not worried about taxes and legacies, but rather making it in retirement, staying retired and leaving something for their heirs.
The business challenge for me with regard to the middle market is that I need to service more clients annually. Delegating some of the service work to my assistant is very important. These clients are not insulted to talk with an assistant rather than me when they have a question.
Westhoelter: One of the biggest challenges I find the clients face is finding the money out of current income to purchase the products they really need or to save what they should be saving. The challenge to adjust lifestyle to gain financial independence is a hard decision. Another challenge is finding the time to meet with a financial professional. Often my clients are two-income households or even multiple job holders, so finding time to meet when all parties can be present is a challenge. I find we must be flexible and be willing to work around their schedules, meeting at nights, on the weekend or even on work holidays. This requires a commitment from us as professionals to work when it is needed, not only when it is convenient.
Ashe: The biggest challenge to clients in the middle market is finding the money to do the things we suggest. They are faced with tough decisions on how to pay for their home, raise and educate their kids, and save for retirement. Our challenge is to help them understand how our products can assist them in those areas, how relatively inexpensive our products are, and how important it is to make sure losses from death or disability are not catastrophic.
For more on the middle market, see: