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Blogs - Practice Perfect
Is Your Asset Minimum Too High?
Wednesday, November 20, 2013
Partner Insights

Identifying reservoirs of new clients in a competitive sector like investment advising is never easy. But if you’ve established inflexible (or even random) new-account minimums, then you may actually be referring viable clients to the competition.

Regrettably, we did this for many years.

Our firm had long had a $250,000 new client account minimum. We had streamlined our processes so that all our clients got nearly identical levels of service. Because our company’s revenue is generated as a percentage of AUM, we believed the $250,000 standard made sense both fiscally and operationally. But was it optimum? Were we missing an opportunity for growth?

When a potential client contacts our firm for the first time, our marketing department collects as much data as possible, including how the prospect found out about us and the amount of manageable assets in the portfolio. Once we took time to look back at that information, we discovered an uncomfortable truth about our company.

Some years back, we began to run Friday reports on that call data. We looked at the number of first-time callers, how many met our account minimum, what their average asset level was, and how many first-time callers scheduled an appointment.

Yet for some reason, we excluded the investable assets of the callers who did not meet our account minimum. And once we added those numbers to the reports, the information was so compelling that we quickly changed our entire approach to client qualification.


Day by day, month by month, we had been turning away tens of millions of dollars of manageable assets.

We also discovered something else about the people we turned away: They had tremendous upside. They were younger than our typical clients, many in the prime of their careers, and were highly motivated savers. Even worse: Many of these “unqualified” callers had missed our minimum by a painfully thin margin. They may not have had $250,000 when they called, but based on their saving habits, they would soon.

The question arose: Would our AUM model still be profitable to us, and beneficial to the client, if we lowered our minimum?

We decided to try to make it work. In 2010, we founded a separate division, with an alternate level of service, designed to meet the needs of clients with $50,000 or more. These clients get annual portfolio reviews with an advisor and have access to a dedicated customer service representative who is familiar with their account. We’ve also increased the minimum for our full-service option to $300,000.

After $95 million in new client assets, we’ve decided to stick with it.

The lesson for us: Just because your current model is working doesn’t mean you should let it stagnate. Those new clients may already be beating down your door.

Pat McClain is cofounder of both Hanson McClain Advisors and Pathway Strategic Advisors in Sacramento, Calif.

(6) Comments
I always find it interesting when firms that do no financial planning, according to their ADV, are highlighted in 'Financial Planning' magazine for their business structure. Wouldn't this be more appropriate for Investment Advisor magazine?
Posted by Robert V | Thursday, November 21 2013 at 9:45AM ET
Robert V, agreed! I view myself as a financial planner first, so the first product I put in front of any new client is (98% of the time) a financial plan. I charge a fee for that plan regardless of whether the client has assets or not. If I am efficient enough creating the plan, I will make money doing that plan, even if the client never gives me assets to manage. Some firms are investment managers who happen to do some financial planning, we are financial planners who happen to manage assets for clients who need help keeping investments in sync with their retirement plans.
Posted by James K | Thursday, November 21 2013 at 5:49PM ET
What this article brings out can be pertinent if viewed in the broader context. The flipside of catering to every customer who approaches you, will we that you be spending time on the nickel-and-dime clients and not working enough for the High Networth Client or the mass affluent client. The strategy suggested in the second half deals with this isssue. Your whole range of services and expertise would be available to a premium clieent but would not be entirely available to the modest investor or the mass affluent investor. You have to maintain a balance.
Posted by tasha123 s | Friday, November 22 2013 at 6:16AM ET
Like to last note of tasha123; What still surprises me is the use of a traditional segmentation model (mainly based on AUM). If you use a right pricing model you can offer the service clients need to the service clients wants.

Staying with your minimum AUM indeed excludes a large group of clients with potential. On the other hand it included a large group of clients that in potential is not looking for all detailed expertise, services and face to face contact. You can expect that group to increase enormous in the coming 25 years (because of the # of wealth transfers to younger generations).

Please find an article I wrote some time ago: http://www.myprivatebanking.com/article/guest-article-by-linda-doesburg-and-boudewijn-chalmers-#!

Posted by Boudewijn C | Sunday, November 24 2013 at 5:40PM ET
This is a tight rope all financial advisors have to walk on. Whilst some would swear that a minimum asset level needs to be maintained for a person to be retained as a client, others would speak of lost opportunities in turning away people who do not make the mark. According to me, the trick is to identify customers based on their future growth potential. The millenium generation may be on the threshold of making their mark, have more of a risk appetite, are open to new ideas and have a future both in terms of earned wealth and inherited one. It would be a good idea to cherry pick some of the members of the millenium club so that the firm could also grow with them.
Posted by KIMMY B | Monday, December 16 2013 at 2:36PM ET
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