Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.Dan Richards

Over the past decade, there’s been increasing pressure on advisors to establish a minimum account size for new clients. The challenge is how to communicate that – should you be direct and upfront, or subtle and indirect?

A New York City-based advisor recently asked that question in this email:

Reading your article on the sentence that generated $600k in new business triggered this question.

I was curious to know how you would advise responding to prospects who contact our office who may not meet our minimum. We have a mature practice and have capacity to take on fewer than a dozen new clients per year. To this point, investable assets are the sole criteria we use to determine whether a prospect is qualified.

That said, it doesn’t seem right to tell someone over the phone something on the order of, “We have a $2 million minimum.” It sounds snooty, and I’m not sure what is supposed to happen with the conversation after that gets said. Note that we tend to provide the greatest value to people with more complex financial and planning situations – while that’s not 100% correlated with assets, there is certainly a connection.

And then there are the referrals from clients. As much as we try to train existing clients as to the people we can best serve, there are always exceptions – the nephew, the pal who may need help but doesn’t qualify.

Any light you can shed on this would be much appreciated”

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Within this email there are actually three questions:

  1. Should you have a minimum asset threshold for new clients?
  2. Should there be other factors that you look at beyond assets?
  3. How do you communicate your criteria to prospective clients?

The need for an account minimum

It’s clear that every advisor needs to set a minimum threshold for new clients.

The reason is very simple: While that threshold will vary based on individual practices, if you have a minimum standard of service level that you provide, you need a minimum threshold of revenue to justify that service.

At one time you could have a large number of clients who delivered little or no profit (or in some cases on which you lost money). That worked when larger clients provided windfall profits and in effect subsidized smaller clients. That model no longer works, as clients are more aware of lower-cost options and advisors are more aggressive in marketing to and competing for your higher-end clients.

In a world where you can no longer rely on super-sized profits from your top clients, you need to ensure that all clients deliver sufficient income to offset the costs of serving them.