Constrained by resources and time, many practice management professionals believe that serving too many non-ideal clients is a significant challenge for financial advisors, the firm says in a new report.
In fact, nearly two-thirds (64%) of practice management professionals find that serving non-ideal clients is the most prevalent productivity challenge for advisors, followed by insufficient process mapping (52%) and ineffective delegation (52%), according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
On average, practices serve 142 clients per producing or revenue-generating advisor. As practices grow, they must be mindful of exceeding advisor capacity and diluting the client experience by taking on too many clients outside their core market, the report emphasizes.
Moreover, while it can be difficult for advisors to turn away non-ideal clients—particularly in the early stages of their career—it becomes far more beneficial to narrow their focus as the practice grows and only serve investors who fit their target client profile, Cerulli says.
Target Market
The firm 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,” explains Marina Shtyrkov, associate director at Cerulli. “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.”
This is especially important for second-career advisors who have unique experiences and insights from their past profession. A clearly defined target market is the key to proactively minimizing future productivity challenges.
At the same time, Cerulli also found that only 15% of practice management professionals believe that supporting aging clients seriously impedes advisor productivity. Most advisors work with an older client base, which is a natural byproduct of the concentration of assets among Baby Boomer pre-retirees and retirees, the report notes. It also underscores the “critical need” to begin developing relationships with younger investors, including the beneficiaries of current clients, the firm says.
Improving Efficiencies
In addition to further defining their niche market, advisors should consider additional options to alleviate the time crunch and improve their efficiencies. According to the report, advisors across all channels spend the majority (53.4%) of their time on client-facing activities, with client meetings accounting for 20.6%—the highest time allocation of any single activity. On average, advisors spend nearly 22% of their time on administrative tasks. In contrast, advisors in practices with $500 million or more in assets spend the least amount of time on these administrative activities.
What’s more, Cerulli notes that advisors who operate as independent RIAs frequently find themselves splitting their time between acting as chief operating officers of a small business and needing to grow their practices through client-facing activity. On average, advisors in the independent RIA channel spend the least amount of time on client-facing activities (48%) and the greatest amount on operations (10%), practice management (9%) and investment research (16%).
Advisors in this position must be realistic about both their skills and their preferences, Cerulli emphasizes. “If they truly enjoy working with clients, they may be better served by hiring an operations manager than trying to assume both sets of responsibilities themselves,” the report advises.
And while ceding any degree of day-to-day control can be a difficult hurdle to overcome for advisors in this position, leveraging the practice management services offered by their custodians can be a useful tool in helping make this decision with a minimum of bias, the report observes. Consequently, Cerulli believes, these challenges will continue to accelerate the success of the hybrid RIA and RIA consolidator segments as more independent RIAs seek centralized external resources to offload operational responsibilities.
Technology Usage
The report also suggests that more effective use of technology can also help practices manage a higher volume of client relationships without compromising service quality or straining individual advisors’ bandwidth. 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 adds.
In addition to exploring digital solutions, advisors can take several approaches to better manage capacity, such as refer non-ideal prospects to another practice, implement a tiered service structure or hire 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 concludes.
