When is a client too small?
Advisors often labour under the misapprehension that small clients will grow into big ones, but here's why they may be fooling themselves.
Video transcript below:
Christopher Myrick, Wealth Professional TV
Christopher Myrick: Are you holding on to small clients on expectations they become big fish? Data indicates that’s not likely and a leading Toronto research firm says you might be better off if you abandon the small fry. Next on WP.
Patrick Kennedy, VP Product and Client Group, PriceMetrix
Patrick Kennedy: You know in talking about small clients becoming large clients, in the big fish study that we did, we definitely observed that some rare occurrence that a big client, becomes a big client while they are with their financial advisors, much more likely that they join as big fish. We have done other studies that suggests that small clients are actually a 108 times more likely to be with their financial advisor, than to become big with that same financial advisor. So, I think a lot of advisors sort of convinced themselves that all their small clients are the big clients in waiting. But the reality is, it’s a rare occurence that a small client actually becomes a large client, a high net worth client with their financial advisor. And often when they do become high net worth for some circumstances, that’s the likely event to trigger a switch in financial advisors as well, so that’s something that advisors want to be on the look for.
Christopher Myrick: Kennedy’s data indicates that abandoning smaller accounts will help improve satisfaction among your larger worth clients. Also statistically small clients are not likely to become big or to remain loyal.
Patrick Kennedy: One of the things that was very evident in the study was that high net worth clients do not like it when their financial advisor has a lot of small client relationships. We see much lower proportion of high net worth investors with advisors who maintain a high proportion or block in smaller relationships. It’s a trend we have been watching for a long time which is sort of the implications on advisors in holding onto a number of their small relationships and what they think most important now is for seeing that the proportion of small households actually affects the retention rate of their top clients, their high net work clients, the higher the proportion of small households that an advisor has, the lower the retention rate of their largest households.
Christopher Myrick: If you are considering moving upstream, remember that smaller clients are less demanding than high net worth clients. To go up the ladder, advisors need to raise their game.
Roberto Loren, Co-Founder, The One Source Financial
Roberto Loren: You could serve the masses, if that’s what you feel is your calling. Obviously for the same work you get less than higher net worth clients. At the same time it requires a different kind of skill set and skill set and you have got to be in the network to be dealing with high net worth individuals. Most of the high net worth clients are what could fall in accredited investors and actually they are the more financially educated ones. So you as an advisor should be in the education mode, you can’t just offer what’s readily available in the banks to high net worth clients. They would technically just laugh at you because they probably would know more than what you are offering.