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RIAs Stay Loyal To Clients, Even Relax AuM Minimums - Study

Tom Burroughes, Group Editor , June 17, 2019


The study claims to show that wealth firms are willing to let some client minimum standards go if it means retaining long-standing customers.

A study of US registered investment advisors finds that two-thirds of them do not impose account minimums on clients or forgo setting them at all, suggesting that they are not only focusing on profitable growth.

The study comes from CanAm Research’s 2019 RIA Capacity and Segmentation Practices Survey, commissioned by Facet Wealth, a firm based in Baltimore. The report comes at a time when, as chronicled by this publication, advisors are breaking away from large banks and wealth shops to build RIAs. Separately, RIAs have been the focus of considerable mergers and acquisition activity, as reported by organizations such as ECHELON, a firm advising M&A actors in this space. Another pressure on advisors - which might explain their willingness to relax some minimums - is worries about clients' children defecting in future.

The survey of more than 360 advisors also shows that profit is not an advisor’s sole motivator: many serve unprofitable clients because they know that these clients still need and deserve financial planning services, Lisa Rapuano, chief financial officer of Facet Wealth, said. 

“At the end of the day, advisors want to do right by their clients, and some who might not be considered ‘ideal’ from a business growth perspective may also be among their earliest and most steadfast relationships,” Rapuano said. “As our industry trends toward professionalization, a majority of advisors are reluctant to let these clients go or relegate them to inferior tiers of service, even as the same advisors face flatlining growth and loss of their time.”

The survey respondents reveal this hesitance in their answers: 44 per cent said they do not enforce their firm’s stated minimums and 17 per cent have no minimums at all. Some 52 per cent of respondents have no formal process for segmenting and then transitioning clients who do not meet their minimums.

Other findings:

-- 45 per cent said time constraints are their biggest pain point; 
-- 42 per cent said growing their book of business was their biggest pain point; and 
-- 50 per cent serve more than 75 clients per advisor.

While many RIAs segment their client base to solve their time and growth challenges, 71 per cent of those who segment do so to provide clients different tiers of service. Client segmentation offers RIAs a way forward, but tiered service can sacrifice client experience and brand integrity, industry analyst Bob Veres said. 

“Advisors can maximize their profits when they commit to high-quality services for accounts that fit their profile and develop a process to replace the revenue of non-strategic accounts without sacrificing the high-touch, human service they’ve come to expect,” Veres said. “Recent advances in machine learning and productivity-boosting technology have created a way for RIAs to segment their books both profitably and responsibly.”

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