If advisors clocked every fraction of an hour a client takes up, as law firms do, what might they discover? Even if they don't, though, the staff often knows which clients need too much attention.
Revenue Per Household
When To Prune
March 2, 2012
Advisors can usually tell if they have to prune clientele after looking at the amount of revenue they take in per household, because certain clients don't generate enough for the effort spent on working with them.
This is a compelling piece of data and it will be hard not to confront it. It may be that advisors looking at these numbers see their large clients subsidizing small clients. From an ethical, fiduciary point of view, does the advisor have a responsibility to protect larger clients from time-eating small clients? On the other hand, don't smaller clients need a trusted advisor, too?
Therein lies the dilemma.
Usually, revenue per household is just one factor to consider. Many advisors think that the children of larger clients are actually like small clients. As long as the advisor has a strong bond with the children, he or she believes it's worth keeping them with the expectation that they will inherit wealth in the future. But data show that 98% of children won't stay with their parents' financial advisor.1 If you keep these individuals as clients because of loyalty, remember that loyalty may not go both ways.
Different Techniques
There are several common approaches to pruning. Advisors can:
Transfer clients to other advisors within their firms;
Transfer clients to advisors outside their firms;
Make clients into house accounts of a broker-dealer;
Part ways with their clients without an advisor reassignment.
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