Focusing on fewer clients with larger accounts is still the most profitable way to build a book.drante/iStockPhoto / Getty Images
Despite the growing use of artificial intelligence and more sophisticated financial planning and investment management tools, serving more clients with smaller accounts can still feel like a grind, according to a U.S. advisor study.
The latest Kitces Report on advisor well-being shows that growing books of business by serving more clients leads to less revenue per hour worked and lower job satisfaction.
“This highlights how efforts to solve an ‘unprofitable clients problem’ through tech efficiency and outsourcing – rather than by moving upmarket to increase revenue per hour – ultimately undermine advisor well-being," the report, released this week, said.
Some in the industry have pointed to technology as the solution for the “advice gap,” which leaves many investors unable to access professional advice because they don’t meet the minimum amount of investable assets.
Specifically, time-saving technology that allows advisors to onboard clients, prepare for and summarize meetings, and build financial plans more quickly has been heralded as a way to democratize advice.
But the Kitces study shows that, for the most part, advisors are happier serving fewer households.
For example, it pointed to broker-dealer-affiliated advisors who use turnkey asset management programs (TAMPs) as ways to keep clients with smaller accounts by serving them more efficiently. While these advisors had more clients, they generated about 25 per cent less revenue per hour than advisors who don’t use TAMPs, which contributed to lower well-being.
In fact, the study found the “sweet spot” for advisor well-being was between 40 and 100 client households.
“[T]he key to moving upmarket while working fewer than 40 hours a week is pruning the client base – gradually reducing the number of clients served to focus on the right affluent clients: those whose needs align with the advisor’s strengths and who can be served most effectively and profitably,” the report states.
Advisor well-being increased with income, the study found, but only to a point, plateauing at around US$500,000 of annual take-home income. Other factors were more important than money. The report found:
- It gets better – Years of industry experience were one of the strongest predictors of advisor well-being, suggesting that the more time advisors spend developing skills, the more enjoyable their jobs become.
- Tech is still really important – Even if tech isn’t solving the advice gap yet, it still matters greatly to advisor well-being, and those unsatisfied with their tech stack are at higher risk of leaving their firms.
- Work from anywhere – While there was no significant difference in well-being between office and work-from-home environments, the flexibility to choose was important to retention.
The report also touched on work culture and purpose. In an age of mergers and acquisitions, it found that advisors working for private-equity-backed firms were less likely to agree that their life has purpose or to express optimism about the future compared to advisors without outside ownership.
It also warned about growth coming at the expense of the relationship-centred goals that motivated advisors in the first place.
“Advisors stuck on an endless treadmill of new goals may never feel satisfied – because if ‘enough’ is always just out of reach, there’s no true finish line,” the report said.
That sounds like the kind of advice many advisors have offered to their clients, but maybe need to heed themselves.
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