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BROKER'S WORLD: NEW YORK (Dow Jones)--Financial advisors prospecting for new business might try calling a plumber or taking the car for a tune-up.
Advisors typically chase wealthy clients by combing the ranks of professionals and white-collar executives, but there's another lucrative segment to consider: owners of top blue-collar businesses.
Finding and winning these clients isn't easy, though. Advisors must approach them carefully, take the time to understand their business problems and be prepared to deal with some challenging financial-planning needs.
"You don't go after them in the traditional manner," said Gregg Mekler, a senior vice president at Piper Jaffray Cos. (PJC) in Minneapolis.
Patching roofs, fixing furnaces and other blue-collar services have built thousands of multi-million-dollar enterprises across the U.S. Oftentimes, these businesses were started by a lone entrepreneur with a truck, a toolbox and a desire to be the boss.
But these successful, blue-collar prospects can be tough to find. Look in a directory of doctors and it's a good bet you'll find a high earner. Look in the phone book under "plumbers" and it's impossible to tell who's prospering and who's just squeaking by. Further, blue-collar entrepreneurs tend to come from modest, working-class backgrounds, and generally are not inclined to display their affluence.
"It can be like finding the needle in the haystack," said Mekler. His four-member advisory team serves some 700 families, about one-third of whom work in blue-collar occupations. Most of them came to his practice through referrals from existing clients, a common way advisors attract blue-collar business.
Advisors can also gain a foothold in this market by telling their auto mechanic, landscaper, and butcher what they do for a living. Giving talks to church and community groups, forming alliances with trade associations and unions, and advertising on the radio are other ways advisors reach these prospects, who are often hidden in plain sight.
Blue-collar entrepreneurs tend to live in modest homes, drive plain cars and "are very unlikely to be showy" about their money, Mekler says. But "a client who shows up in ratty jeans and work boots might have assets well north of seven figures."
A Matter Of Trust
"Contractors can make a lot of money, but they don't know who to trust," said Mike Maynard, a business coach with the Plumbing-Heating-Cooling Contractors Association, a construction industry trade group. Maynard said advisors need to understand how to present themselves and talk to blue-collar people, who often lack higher education and might instinctively distrust "some guy in a suit and tie."
Financial professionals "may tend to talk over a contractor's head. The contractor doesn't want to appear stupid, so they just nod their head and choose to do nothing," Maynard said. "A planner whose father was a contractor could make a mint."
Bob Connolly, an attorney and certified financial planner at A.G. Edwards Inc. (AGE) in St. Louis, said overcoming the blue-collar client's distrust can be a fragile process.
"Often, their business is done on a handshake," he said. "They'll dump people quickly if (advisors) don't gain their trust."
Connolly said advisors should be patient and show interest in a prospective client's business. He suggests advisors walk around at trade shows - where they'll find business owners are "not as guarded" - and be prepared to talk shop. An advisor targeting home builders, for instance, might want to chat with prospects about economists' forecasts for lumber prices.
Beyond familiarizing themselves with a client's market niche, advisors can show an understanding of blue-collar business problems by learning about things like competitive bidding, worker's compensation, and liability insurance. Rich Plumber, Poor Plumber
Half of the 690 respondents to the Plumbing-Heating-Cooling Contractors Association's latest member survey said their businesses had annual revenue of more than $1 million and about one-third exceeded $2.5 million. Maynard noted that he recently consulted with a heating contractor in New York whose business grosses $40 million a year. He estimated that 10% to 15% of the nation's 65,000 licensed plumbing and heating contractors have profit margins in the double digits.
Of course, that leaves many businesses that are struggling or barely viable. All contractors, even successful ones, have "a tenuous connection to being broke," said Paul Petillo, a supermarket meat manager in Portland, Ore., who's carving out a second career providing financial advice to blue-collar workers. Petillo, author of "Building Wealth In A Paycheck-To-Paycheck World" and a forthcoming series of financial-planning guides, notes that many contractors are heavily indebted - often due to previous business failures - and face high fixed costs, sharp fluctuations in their earnings and the knowledge that a physical injury or economic downturn could ruin their livelihoods.
Petillo said this insecurity leads contractors to plow their money back into their businesses and see savings as "assets they may need to get by on, rather than money for a second home."
Connolly at A.G. Edwards agrees. "They tend to neglect building assets outside the business," and instead assume they'll just keep working. "They feel 'the business will be my retirement and I'll always have income,'" he said. Business owners also face limits on how much they can contribute to their own company's qualified retirement plan, he noted.
Mekler said his team at Piper Jaffray spends a lot of time educating blue-collar clients and their families about money and "helping structure their thinking about business transition." Because these clients tend to pour their personal assets into their businesses, an important role of the advisor is to help them extract that value, he said, either through a sale or financial restructuring of the business.
The blue-collar worker's heightened risk of injury is another important financial-planning issue. Business owners who lack adequate insurance or plans to deal with a sudden inability to work "often end up dealing with disability transitions in crisis mode," Connolly said.
Most of all, Maynard said blue-collar businesspeople need advisors who will educate them about their finances, rather than try to sell them something.
But advisors have to "put information at a level that the client gets it," Mekler said. At the same time, he cautions that it's a mistake to underestimate this kind of client. Many are highly intelligent people who built their businesses from scratch through "street savvy," and have proven their ability "to get it in the world," he said. When encountering a prospective blue-collar client, advisors should understand that "they're not going to open up on the first meeting. They're going to test you."
Advisors who pass that test often enjoy long, close relationships with their blue-collar clientele. Once these clients find an advisor they can trust, Connolly said, "they'll practically turn their checkbook over to them."
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