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Financial Planning > Charitable Giving

How to Right-Size Service for Small Clients

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Affluent clients are gold to independent advisory firm owners, as they have more assets to manage and often can benefit from more sophisticated financial products and strategies.

That said, many advisors also like to work with a number of “smaller” (i.e., less affluent) clients. It’s sort of like working pro bono for clients who will benefit the most from sound financial advice.

Yet it’s essential to the success of most independent firms that their owners find a way to serve these smaller clients without undermining the financial stability of their businesses.

The obvious problem with less-affluent clients is they usually can’t afford to pay enough for financial advice to cover the cost of delivering that advice. Here’s how firm owners should deal with this challenge.

The first step toward a solution is to understand how “smaller” accounts affect the business. The quickest (and best) way to do this is to calculate the “median account size” of your advisory firm.

To do this, simply make a list of all client accounts along with the annual revenues they generate. Then sort them from highest to lowest in terms of annual revenues.

Next, identify the account that falls smack in the middle of your client revenue range. (If the middle falls between two clients, take the average of those two.)

This median account size then becomes the dividing line between large and small accounts. In most independent firms, 60% or more of revenue comes from accounts above the median client revenue.

Once smaller clients as a group are identified, it’s time to quantify the this group’s impact on the business. In many firms, the smaller clients are serviced by designated advisors. To quantify their impact, calculate professional capacity: the amount of annual client revenue per advisor.

Most firm owners will notice that advisors who work with more affluent clients generate higher revenues than those who work with smaller clients. This tends to indicate that smaller clients are a drain on the business.

The owner’s challenge is to find a way to ensure that smaller accounts generate revenue per advisor that is at least equal to the revenue per advisor on larger accounts.

There are several ways to solve this problem, such as raising fees on smaller clients to reducing the services provided to them. But in the end, there really is only one workable solution.

Advisors working with smaller accounts will have to work with more clients. And they will have to work with enough more clients so that revenue per advisor increases to match that of advisors serving larger clients.

What to Do

Before rushing out and assigning your advisors more small clients, stop and think: If they could work with more clients, they would be doing so now.

In fact, by giving them more clients, their level of service most likely will go down. If the service level goes down, everyone in the organization gets hurt as the brand’s reputation suffers.

Your challenge then is to rethink your service model for smaller accounts to enable your advisors to work with a target number of clients that will generate the same level of revenues as your larger clients.

To do this, many firms look at digital platforms. However, we’ve found that while these platforms may seem like a good solution, they tend to be so expensive that they don’t improve a firm’s economics.

Instead, we recommend focusing on your service model for smaller clients.

Most firms give too much service to smaller clients. This can come in many forms, from scheduling client meetings too often to overly sophisticated financial plans, investment portfolios or retirement plans projected out decades into the future.

Firms can still do right by the client with less service. This might even be doing the client a service.

The rule for working with smaller clients is simple: Don’t give them more than they need, more often than they need it.

This approach should enable advisors to work with numbers of smaller clients and have total revenues that are in line with the revenues of advisors with more affluent clients. This means your firm can keep working with smaller clients without eroding the success of your business.


Angie Herbers is Managing Director of Herbers & Company, an independent growth consultancy for financial advisory firms. She can be reached at [email protected].


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