Financial Advice for Those With Small Nest Eggs

By Ron Leiber, NY Times

When Merrill Lynch recently discouraged its thundering herd of brokers from taking on new clients with under $250,000 in assets available for investing, it wasn’t a big surprise.

Brokerage firms have been making these sorts of moves for years, and Merrill is notorious for a leaked memo in the late 1990s that discouraged “charity work” for clients with less than $100,000 in assets — “poor people,” as the memo put it.

That patrician view is probably a minority one: if the people who run Merrill Lynch felt that way, they wouldn’t be doing what they’re doing now, which is trying like mad to figure out a way to service those smaller accounts profitably.

But Merrill’s decision to tell its brokers that they might not get paid if they persisted in working with such people reflects one of the sorriest truths of the financial services industry: Nobody has figured out a way to consistently give large numbers of people reasonably priced financial advice across all areas of their life and to do so in an ethical manner.

The case of Merrill — and its effective opposite, a start-up called LearnVest — is instructive in part because it reflects how the world of managing money has changed since Merrill Lynch first started hanging shingles on Main Streets all over the United States.

Charles E. Merrill & Company opened for business nearly 100 years ago, and the company (along with Merrill’s current owner Bank of America, interestingly enough), resolved to serve Main Street, not Wall Street. Charlie Merrill put it this way, according to the 1994 book by my colleague Joe Nocera, "A Piece of the Action." In it, he quotes Mr. Merrill as writing the following: “A new guild has sprung up in the (investment) banking profession which does not despise the modest sums of the thrifty.”

Many brokerage firms have backed away from that sort of stance in recent years. An old saw in the industry notes that the little old lady with the diminishing balance who hounds you when her dividend checks arrive late takes up five times as much time as a 50-year-old millionaire.

Besides, you make more money serving richer people. So the big firms (and thousands of smaller operations and individuals) fight hard over the 1 percent and then siphon off a small cut of their assets each year through fees and other revenue mechanisms.

Everyone else ends up at Charles Schwab or Fidelity and pays roughly $1,500 to $3,000 if they want a full financial plan with advice on insurance and mortgages and other things beyond investments.

Nowadays, a thrifty Merrill customer with modest sums is told to use a service called Merrill Edge. And Merrill is taking its best shot at attracting and keeping them (and eventually) upgrading them to a real broker), given that it believes that there are 28 million households with $50,000 to $250,000 in assets.

The people who service them are called Financial Solutions Advisors. There are more than 500 of them in bank branches and the company will hire 500 more in 2012. There are currently about 800 F.S.A.’s working in call centers as well.