Implementing And Communicating A Minimum Account Size

By Robert Sofia

Having a large minimum account size is the Holy Grail for many financial advisors. In theory, having fewer but larger clients, thus working less and earning more, seems wonderful. In reality, however, it can present significant challenges. If a minimum is communicated improperly, existing clients may feel jilted. If exceptions are made, then a minimum can come across as a sales ruse rather than a prudent business practice. If you turn away the wrong client, precious revenue can be lost. How can advisors set and communicate their account minimum in a way that will build up their business rather than tear it down?

Step 1: Choose The Right Minimum Size

Before you select a minimum account size, you need to know what it costs you to support a client. There are a number of formulas you can use to calculate this, but here are two simple ones that should get you close (and you should use the most recent 12-month figures):

Operating costs minus marketing expenses ÷ number of clients = annual cost per client
Total revenue minus all expenses = net revenue ÷ hours worked = hourly rate

Once you have these two figures, the rest is simple. To get your final figure, simply multiply the number of hours you expect to work with each client by your hourly rate and add that figure to the annual cost per client to get your total. Here’s a hypothetical example of what the numbers could look like:

  • $100,000 operating costs minus $25,000 marketing expense ÷ 100 clients = $750 cost per client;
  • $250,000 total revenue minus $100,000 expenses = $150,000 net revenue ÷ 2,000 hours worked = $75 per hour x 5 hours per client = $375 per client;
  • Adding the two totals together, the total annual cost per client becomes $1,125.

The idea of this exercise is not to pick a final number but to create awareness around what it actually costs to support a client. Many advisors are shocked to learn that they have been taking on clients who are unprofitable. The advisor in our hypothetical scenario shouldn’t even consider taking on a client who doesn’t have at least $150,000 to invest.

Of course, knowing what it costs to support a client is only the first step. The next is to consider what your market can bear. Consider your current client base first. If your average client invests $200,000, this may be a good place to start. If you’ve never had a minimum before, it’s usually best to be conservative in the beginning, since you can always raise your minimum later. It’s much harder to lower a minimum that was set too high, as this can appear desperate. Over time, you should gradually reassess and raise your minimum. More information on selecting the right minimum for your area was discussed in my last article, “Should You Institute a Minimum Account Size?” published at in July.

Step 2: Communicate Your Minimum