Financial advisors would be better off refusing to serve clients who do not fit into their niche rather than taking all comers, Cerulli Associates said in recent research.
Because their resources are limited, advisors need to choose their clients wisely, the research organization said in the latest Cerulli Edge: U.S. Asset and Wealth Management Edition released today.
“Serving too many non-ideal clients may undermine advisor productivity,” Cerulli said. Sixty-four percent of financial advisors said their most prevalent productivity challenge was serving non-ideal clients. The study included 2,000 financial advisors.
“While it can be difficult for advisors to turn away non-ideal clients, particularly in the early stages of their careers, it becomes far more beneficial to narrow their focus as the practice grows and only serve investors who fit their target client profile,” Cerulli said. Therefore, having a clearly defined “ideal client” is crucial.
On average, practices serve 142 clients for each revenue-generating advisor. As practices grow, the practice must be mindful of exceeding advisor capacity and diluting the client experience by taking on too many clients outside their core market, according to the study. Cerulli has found that many advisors, even those who have been in the industry for decades, struggle to articulate their practice’s ideal target market.
“Many default to generic categories such as ‘retirees’ that are far too broad to have a meaningful application to their business development efforts or differentiation value,” Marina Shtyrkov, Cerulli associate director, said in a statement. “Wealth management firms should encourage advisors to identify their niche early on and consider how they can uniquely service that segment of clients in a way that other advisors cannot.”
Advisors who are starting a second career in the financial industry probably have insights drawn from their previous profession that can help them serve particular clients. That expertise should be clearly stated and used to serve clients.
The amount of resources available to an advisor also can be boosted by the efficient use of technology. “Technology can help practices manage a higher volume of client relationships without compromising service quality or straining individual advisors’ bandwidth. While technology tools offer the promise of efficiency gains, many practices aren’t fully leveraging the full feature set,” Cerulli said.
According to the research, 69% of advisors believe they can make better use of their existing technology stack.
“This high percentage underscores the persistent opportunity for technology providers that can truly make their platforms the path of least resistance for advisor adoption and implementation,” Shtyrkov added.
Other strategies that can boost productivity or enable advisors to concentrate their talent include referring non-ideal prospects to another practice that better suits their needs; implementing tiered service structure; or hiring additional support staff.
“Ultimately, practices that strategically align their value proposition with the right client type, fee structure, and AUM segmenting will be best positioned to scale,” Shtyrkov said.