Should financial advisors leave their smaller accounts behind when they switch firms?

Definitely, says PriceMetrix, the Toronto-based research and practice management software firm. Not necessarily, say some top industry executives.

The average household with less than $100,000 in investable assets pays their financial advisor only around $30 per month, according to PriceMetrix’s Small Households Metrics report. “This return is hardly enough to cover basic account costs, and barely enough to justify time spent with the client,” says Amrita Mathur, PriceMetrix marketing director. “The result is a considerable strain on profitability and a threat to the value proposition of a full service firm.”

What’s more, the firm argues, small clients rarely become big clients. Clients with $100,000 or less in investable assets are 108 times more likely to leave their advisor than to become big while with the same advisor, according to the report.

Even clients with $250,000 or less in assets “directly and negatively affect an advisors’ growth rate,” according to another recent PriceMetrix report, Moneyball for Advisors. Advisors who are “outperformers,” the report says, “have proportionately fewer small clients and also actively work on decreasing their proportion of small households in their books at a faster rate.”


In addition, small clients make it more difficult to keep wealthier accounts, PriceMetrix asserted in a study on “the behaviors and characteristics of the high-net-worth clients.” The more small clients an advisor has, the higher the attrition rate of the largest clients, the study found.

As a result, “an advisor needs to make room and have the capacity to attract and serve the more complex needs of high-net-worth clients,” says Pat Kennedy, vice president of product and client services for PriceMetrix.

Leaving smaller clients behind increases the growth trajectory of an advisor’s new firm, and lowers the growth trajectory of his or her old firm, Mathur says. Consequently, she actually suggests that firms “make it as easy as possible for advisors who are leaving to keep their small clients." For instance, she says, the firm "could notify small clients that their advisor has left and facilitate an easy transition if they choose to follow.”


But industry executives are not so fast to ditch clients with smaller accounts.

Clients with fewer assets may simply be younger clients with the potential to grow, says Brent Brodeski, CEO of Rockford, Illinois-based Savant Capital Management. And smaller clients may also be in a position to refer bigger clients, he adds.

In addition, firms with efficient client segmentation strategies in place may be able to work with smaller accounts quite profitably, Brodeski maintains. Savant, in fact, has a division for smaller clients with less complex needs that utilizes junior advisors. “It allows our younger advisors a chance to get experience and allows the clients to get the level of service they need but would be harder to get if they were competing for a time with advisors who have larger accounts,” Brodeski says.

Steve Lockshin, chairman of Washington and Los Angeles-based Convergent Wealth Advisors, says efficient operations are key to working with smaller clients.

“There’s no doubt that in many cases the 80/20 rule applies, and 80% of profits come from 20% of clients,” Lockshin says. “But there is also an opportunity for firms with a lot of smaller clients to run their business efficiently and make a profit. Everybody wants to move upstream, but I think there’s a lot of opportunity downstream.”

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