Skip navigation
An advisor and a client at a table.

Five Ways to Make Small Clients More Profitable

Outsourcing investment management is only one way to service small clients until some turn into big ones.

By Elisa Garcia

If you’re like most advisors, you focus most of your time and energy on your “A” and “B” clients—those with large investable assets and who represent the “bread and butter” of your business. The smaller accounts, your “C” clients, are often viewed as requiring too much time relative to the revenue they generate: time that could be better spent developing new A and B clients and increasing their assets under management.

Rather than ignore these clients, or cut ties with them altogether, it’s time to think more expansively about the potential of smaller accounts. Much of their value to you as an advisor is the high potential of these often younger clients to grow into traditional clients. Furthermore, working to build long-term relationships with the next generation of wealth helps “future proof” your firm. Allowing junior advisors at your firm to manage these small clients benefits your firm, too, as it gives them important client-facing experience.

Remember, too, that small clients may be your biggest, most loyal fans: they trust you, are often a source of referrals and appreciate that they’ve been well-served even though they’re not a great source of revenue (yet!), so efforts to nurture them can be very productive.

Here are a five steps you can take today to make them more profitable:

1. Be selective about the small clients you advise. Look beyond a client’s investable assets to understand their underlying investing philosophy and their mindset regarding saving. With time, does the client have the potential to become more like your traditional clients? If they’re a DIYer and not likely to accept a broader spectrum of guidance, or if they’re highly sensitive to fees, it’s unlikely that the client will be profitable (or even advisable) in the long term. Similarly, if their occupation and career path don’t suggest upward mobility and increasing assets, they may not be a good fit. The best investors are those who understand value, are comfortable taking your guidance, and are willing and able to pay for it.

Tip: Don’t summarily reject DIYers if you can determine that this person is someone who’s realized they can no longer manage their investments well on their own. These can be great clients who ask good questions, understand the investment process and  aren’t reactionary when the market dips.

2. Consider outsourcing your investment management. A study by Cerulli Associates (U.S. Advisor Metrics, 2016) found advisors spend nearly 20 percent of their time on investment management (half of that on portfolio-related tasks like research and due diligence).

Advisors who outsource spend 12 percent of their time meeting prospects and 37 percent meeting existing clients, compared with 6 percent and 20 percent, respectively, for advisors doing their own investment management. More time with prospects and clients has a huge payback: outsourcing investment management, on average, added an additional $14.5 million to advisors’ assets annually—twice the amount of those who managed investments in-house.

Tip: While clients might initially be resistant when you explain you’re relying on outsourced expertise for managing their portfolios, positioning it as a strategic move that allows you to serve them better will help allay any fears they may have.

3. Invest in technology to support administrative needs. The right technology can streamline operations and reduce overhead, and, more importantly, make it possible for advisors to expand their reach, targeting more and different types of clients. There are a number of tools available, including those that allow you to hold virtual meetings, eliminating travel expenses, and making meetings more convenient for you and the client. Virtual meeting tools also minimize the effects of a client moving out of your area. Other tools include visualization software like Tableau which improves client interactions by enabling you to present powerful visual analytics and calendaring systems that take the hassle of scheduling routine appointments off your plate.

Not only do these tools relieve you of many of the time-consuming, and relatively low-value, tasks, they address millennials in the way this demographic prefers and expects. According to a Deloitte report, millennials are digital natives who embrace technology and consider online platforms an important aspect of financial advice. In fact, 57 percent even say they’d change their banking relationship for a better technology platform solution.

Tip: When implementing new technologies, start with existing clients first—and don’t overlook older clients: they may appreciate tools that make engagement with you easier and more productive. Once you have evidence that the technology adds value, introduce it as a valuable part of your service offering.

4. Leverage a virtual assistant to do routine tasks. By turning over low-value work to what’s essentially a freelancer (or, in some cases, automated intelligence “bots”), you’re able to spend your time on higher-leverage activities. Websites like connect you with VAs or artificial intelligent assistants who can schedule appointments and referral dinners, find contact information for prospects, send thank you notes and other similar work. Unlike salaried or hourly employees, you pay only for the actual time a VA spends working, making them a more flexible resource whose usage can easily be scaled depending on need.

Tip: To work effectively with a VA, you must view them as another employee. Set your VA up to succeed by clearly outlining processes and providing specific instructions for each task. Send a test project to gauge the quality, expediency and overall cost effectiveness before you commit.

5. Rethink pricing. Today, many advisors are still pricing their services based on assets under management, typically at 1 percent. The failure of this method is that it keeps clients with less money from investing, or, if they do invest, keeps the advisor from being profitable. And, when the market declines, fees decline, even though advisors are offering the same level of service to their clients, regardless of the market environment

Though asset-based fees remain the most common fee structure, according to Cerulli. The number of advisors charging fixed fees for financial planning continues to rise, increasing from 33 percent in 2013 to nearly 50 percent in 2017. Interestingly, far more millennial advisors are charging fixed fees (62 percent), suggesting that as younger generations become increasingly willing to pay for financial advice, younger advisors are aligning with the trend by implementing this model. It could also be a reflection of that generation’s familiarity with and use of subscription-based services, like Netflix and Amazon Prime.

A closer look at how much time you’re spending on small accounts might reveal an opportunity to structure your pricing differently. Conduct a simple time study: assign a dollar value to the hours you’re spending and determine what margin you want. If the results show that you’re not making the margin, you may want to consider implementing a flat-fee based structure to achieve this.

There are a number of structures that could work, like a monthly, quarterly or annual retainer, or project-based, as examples. The structures vary and depend on many factors, including the advisor’s client base, what they’re willing to pay and the goals of the advisor, both financially and in terms of whom they serve.

Tip: Do some legacy client testing on implementing such an idea, and position it as a test to gauge a reaction before rolling it out more broadly. You may also decide to set up two service-level offerings—it doesn’t have to be a one-size fits all.

Elisa Garcia is a Business Development Manager at Betterment for Advisors.

TAGS: News
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.