October 5th, 2010 by Dan Richards, ClientInsights.ca

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“What does it take to succeed at the highest level?” is a common question among both new and not-so-new entrants to the financial industry.

PriceMetrix is an industry leader in advisor productivity. Launched 10 years ago and based in Toronto, today it works with 20,000 advisors from 20 firms in the United States and Canada.

Recently, PriceMetrix released a thought-provoking analysis of the role that smaller households play in hindering advisors from achieving peak levels of financial success

Analyzing the books of 8,000 advisors from 15 firms, they divided client households into three categories:

Small — under $100,000 in assets
Medium — assets of $100,000 to $1 million
Large — assets over $1 million

Is it all about the money?

A note on making the right decisions for your business:

There are many factors that drive advisor satisfaction beyond simply making money, not the least of which is feeling good about the difference we’re making in clients’ lives — and it would be wrong to suggest that maximizing income is all this business is about.

That said, when making business decisions on things like the kinds of clients you focus on, it’s important to understand the tradeoffs you’re making along the way.

Four key conclusions

PriceMetrix drew four key conclusions:

1. Most advisor portfolios are concentrated in small households

2. There’s very low probability that small households will grow over a 5 year period

3. With tenure in the business, most advisors shift to larger clients — the faster this happens, the more quickly advisors move to higher levels of production

4. Reducing small households can significantly improve productivity

The role of small households

PriceMetrix quantified what many advisors had suspected - on average, smaller households represent a disproportionate number of clients relative to the revenue they generate.

Here’s the data for the average advisor on small, medium and large households:

% of households % of revenue

Small accounts (<$100K) 52% 9%

Mid sized accounts ($100 K — $1M) 42% 44%

Large accounts (>$1M) 6% 47%

In other words, the average advisor could give up the bottom half of his or her clients and lose less than 10% of revenue.

The chances of small households growing

Many advisors justify their smaller clients by talking about the future potential they represent.

And certainly that’s true in some cases — I recently spoke with a high earning, professional couple in Vancouver in their mid-thirties who’ve paid off a university loans and a $2 million house and are saving $300,000 annually. Even with relatively low assets today, few advisors would turn this couple down.

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