Financial Advice for Those With Small Nest Eggs

CORRECTION APPENDED

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.

A few years ago, Citi took a bold step with its myFi service that aimed to provide just that sort of holistic guidance from bank branches. But it introduced the service at one of the worst economic moments since World War II, and the bank shuttered myFi when it did not succeed quickly enough for its tastes.

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.

The company (to my great surprise) could not say how many of them were certified financial planners, the sort of people trained to look at a client's whole life before making investment recommendations.

If Merrill isn't tracking this, it's tempting to conclude that the company doesn't make the credential (and holistic advice) a priority and that all it wants to do is push investments. Still, Merrill does the right thing and encourages people to earn the certification by covering classes for F.S.A.'s who want to become certified financial planners.

Dean Athanasia, the executive who oversees Merrill Edge, said that any good investment advice had to be holistic by its very nature. ''If you have a mortgage and debt, then you need to factor that into the consideration of your planning for the future,'' he said. ''You can't just look at assets.''

The Merrill Edge investment account costs a flat $125 each year if you are working with an F.S.A., though the company will also manage a portfolio for you for 1 percent of your assets annually. As for the underlying mutual fund fees, the firm collects ''the appropriate fees based on our agreement with the firm and the prospectus.''

Anyone working this way needs to ask their adviser for a plain-English explanation of how much money, if any, Merrill stands to collect in any way, shape or form now or in the future, based on the mutual funds it selects for you. And if any of you have asked an F.S.A. for a collection of low-cost Vanguard or similar funds, I'd be curious to hear what the reaction was.

On compensation, Merrill appears to be doing the right thing, meanwhile; advisers earn a salary plus incentives based on the amount of assets they gather and manage, whether it's in bank savings accounts or in mutual funds or other investments.

The most curious thing about my conversation with Mr. Athanasia is that he didn't once mention personal budgeting.

Contrast that with LearnVest, which opened for business in late 2009 with a focus on helping younger women. The company patterns itself in part after Weight Watchers and offers content, tools and a financial dashboard that pulls information from all your various accounts. It also conducts what it calls ''boot camps'' for people looking to make financial changes; 280,000 people have signed up for at least one so far.

LearnVest's most intriguing offering, however, is something it introduced earlier this month: three tiers of access to financial plans of varying detail. Customers also get e-mail or phone access to live certified financial planners who can help put the plans to work. Prices range from $69 to $349 for varying levels of phone and e-mail access.

''We don't think financial planning should be a luxury to anyone,'' said Alexa von Tobel, the 28-year-old founder and chief executive, who is quick to point how warped our world is when you need a plan to build wealth but need wealth to hire someone to build you a plan, given that the advice can cost well into the four figures.

But you get what you pay for, and the biggest thing you do not get from LearnVest is investment advice. It's not a registered investment adviser, so it can't tell you what mutual funds to pick. Yet the company persists in calling its plans ''core'' and ''complete'' and mentions retirement planning when promoting one of them.

Sheryl Garrett, who runs a network of financial planners who charge by the hour and says she admires what Ms. von Tobel is doing, worries that LearnVest customers may feel misled in this regard. ''Those terms are really, really dangerous,'' Ms. Garrett said. ''I would fully anticipate that some kind of investment advice would be given when looking at these plans.''

''We are confident that the language used in our marketing, terms and conditions, and disclosures clearly define what is and is not included in each plan package,'' the company said in a written statement. ''We have received great demand in the last week from members across the country and have not encountered any confusion.''

And Ms. von Tobel, who practically bursts with ambition in person, seems set on offering investment advice one way or the other, pretty soon. Until then, the company's disclosure efforts sure seem as if it's trying to wash its hands of any regulatory or other responsibility for the advice it offers up. ''LearnVest is not a financial adviser, planner, broker or tax adviser,'' it reads. ''The services are intended only to assist you in your household and financial organization.''

Meanwhile, her fees are cause for suspicion; can she really pay her seven full- and part-time planners a good wage and turn out a good plan while charging such low fees? She said that she was confident enough in the profit margins she had built into the service that she was willing to take the same no-new-fee pledge (for 24 months in this case) that my friend Suze Orman agreed to in my column last week about her new prepaid debit card.

That said, Ms. von Tobel reserves the right to charge more for extra services beyond what her three plans include today. LearnVest might also build additional packages that might cost more than the current $349 top rate.

As for those planners, Stephany Kirkpatrick, trains all of them. And her newest hire, who is not working with customers quite yet as she's sitting for the certified financial planner exam in two months, is Mina Black, who is 32 years old.

LearnVest hired her from Merrill Edge, of all places, where she worked in the Bank of America branch closest to the Occupy Wall Street protests. ''I have a lot of friends within this market,'' Ms. Black said. ''When they came to me as a Merrill Lynch adviser, there was only so much I could do with them.''

In recent days, according to Ms. von Tobel, the company has seen keen interest from customers. But there have also been a lot of Web site visitors from other financial services companies, including Merrill itself, that might have cause to worry about their younger customers being poached.

''The way we think about this is that we would love to have those clients,'' she said. ''Everyone is looking. We're one big fishbowl.''

Online Correction: January 13, 2012, Friday

This article has been revised to reflect the following correction: An earlier version of this column incorrectly referred to the customer service employees of Merrill Edge as Financial Service Advisors.

PHOTOS: Mina E. Black and Stephany Kirkpatrick of LearnVest, which seeks to educate young women. (B1); At LearnVest, Stephany Kirkpatrick, left, trains financial planners. Mina Black will be taking the certification exam soon. (PHOTOGRAPHS BY MARILYNN K. YEE/THE NEW YORK TIMES); Charles E. Merrill, about 1954. He said the investment banking profession should not ''despise the modest sums of the thrifty.'' (PHOTOGRAPH BY MERRILL LYNCH, PIERCE, FENNER & BEANE) (B4)

January 14, 2012, Saturday    Late Edition – Final
Section: B    Page: 1    Column: 0    Desk: Business/Financial Desk    Length: 1807 words