Neel makes $65,000 to $70,000 a year and has $45,000 tucked away in his 401(k) plan. But that's not nearly enough to attract many fee-only financial planners in Los Angeles, who typically require that a potential client have at least $100,000 in assets. These planners usually want to manage their clients' money on a continuing basis in exchange for a percentage fee, rather than providing a one-time plan or working at an hourly rate.
Fortunately, some financial planners do specialize in middle-income clients, including Margie Mullen, a fee-only advisor in Los Angeles. She was able to advise Neel that, while he needed to make a few changes, he was doing many things right.
"He's a perfect example of someone who started saving and investing early," Mullen said. "No matter what comes along, he's going to have that discipline of 'pay yourself first.' "
Neel tucks 15% of his salary into his company's 401(k), plus $2,000 a year into a Roth IRA. In addition, he puts $400 a month into a taxable investing account.
Neel is also debt free. He avoids car payments by using a company-provided vehicle, and pays off his credit cards in full every month. That's a lesson he learned from his parents, who lived well but conservatively in a Portland suburb and who talked to him about the importance of staying out of debt.
Neel's father also encouraged him to begin contributing at age 17 to an individual retirement account. Neel's dad presented him with a list of no-load mutual funds, and Neel picked one that had been performing well at the time.
Neel has continued the habit of selecting investments based on recent performance, rather than how the investments fit into his long-term plans. And that's unfortunate, Mullen said.
For example, Neel recently switched his 401(k) allocation out of two stock funds and into his company's stock because the stock had been performing better recently. But Mullen said having half of his retirement money and his salary riding on one company was too much of a risk.
Neel also was unhappy with the recent performance of his other investments, including two mutual funds and two stocks--Cisco Systems Inc. and Sun Microsystems Inc.--both of which have lost more than half their value since he bought them last year.
Neel's discontent with his investment performance drove him to seek the help of a financial advisor--only to find no takers.
Finding a planner has become increasingly difficult for people without a lot of money, said Pamela Christensen, a Sacramento planner who is active in the Financial Planning Assn., a membership organization for commissioned, fee-based and fee-only financial planners.
Most planners find it more profitable to serve wealthy clients, said Christensen. "People are becoming much more aware of the need for financial planning, but they're not able to find a whole lot of independent advisors willing to [serve less-affluent clients]," she said.
The economics and ethics of the financial planning business are part of the problem, Mullen said. Most good financial planners insist on taking a comprehensive look at their clients' finances--from their credit card debts to their insurance coverage--before discussing investments, Mullen said.
That takes time, and many planners say less-affluent people can't pay enough to cover the costs. Some offset the costs by accepting commissions from their investment recommendations, while others have become asset managers, charging about 1% of the client's investments annually.
The dearth of planners for people with few assets is particularly acute in Southern California, said Mullen, who charges $200 an hour and also manages assets for a percentage fee.
"Here in L.A., where you have such wealth, everybody's going after the big assets under management," Mullen said.
People with less money may need guidance just as much--particularly in a bad market, she said.