Advisers resist downsizing clients as brokerage firms press for change
HOLLYWOOD, Florida -- Advisers may not want to cut some of their clients loose, but they may have no choice if they want to survive in the new fiduciary environment.
That was one of the key takeaways from one of the sessions at the BISA convention on Thursday.
Noting that advisers have more clients than they can optimally serve, the speakers encouraged program managers and other attendees to consider other channels that might better serve less profitable clients. Advisers might, for example, move clients to an associate adviser or platform program or even a call center.
"The average adviser has way too many clients in a book," said moderator Scott Stathis, co-founder and managing partner at consulting firm Stathis Partners.
Stathis walked attendees through an analysis of the books of business of 550 of LPL's top-producing advisers. It showed that clients with the lowest net liquid worth accounted for 45% of their business yet generated only 5% of their overall revenue.
"We think about the number of clients as a proxy for time," said Arthur Osman, a top executive in the LPL division that supports banks and credit unions. "It takes just as much time to facilitate an IRA contribution for a mass-market client as it does a high-net-worth client."
In a bid to increase its profitability, Webster Bank has started to "channelize" its clients and move away from a branch-based financial adviser model, said John Olerio, director of the bank's investment services business. The financial consultants at the center of the old model have been the "most productive in the country," he said, but in the new environment they will need to make adjustments.
As part of the transition, the bank is working with 10 of its top producers to whittle their books of business from 1,500-plus clients to just 900 over the next two years. They will also be moving the 10 out of the branches and into offices, opening space at branches for more junior advisers to benefit from referrals. In two years, the bank's top advisers will work from just two banking centers, down from five today, Olerio said.
"Financial consultants are still as critical as ever but will not be the center of the universe going forward," he said.
Eventually, the producers will not be linked to a banking center at all, completing the transition to what he referred to as a "second story model." The bank will also look to see their books go down to 500 clients and eventually to 200.
"Banking centers aren't happy losing their top producers," Olerio said, but the unit is nevertheless "working through the entire organization" to help advisers understand that it's a critical initiative.
"There is definitely a level of resistance, but I believe DOL has created a reality where both advisers and program managers understand that to be successful in the future they have to run practices differently than they have in the past," Osman said.
Getting buy-in from advisers, of course, is key. Advisers need to understand the importance of doing it before they can embrace the changes, said Olerio. As part of that, Webster provided advisers with data before they initiated what he called a "disciplined learning process." They held group meetings, webinars and a significant road show to get advisers on board with what the bank was trying to do.
"It's not a field of dreams," said Osman.