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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:
- Should you have a minimum asset threshold for new clients?
- Should there be other factors that you look at beyond assets?
- 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.
Should assets be the only criteria for new clients?
The advisor who emailed me provides the greatest value to people with complex financial situations, associated but not 100% correlated with assets.
Despite this, he only considers assets when taking on new clients – ignoring the value he can provide, how satisfying and enjoyable a client will be to work with or a prospective client’s ability to be a point of access into a higher level of potential clients.
Some advisors have adopted a scoring formula, where they assign a point value to a variety of factors:
- the level of income a new client would provide
- other potential short term revenue from assets held elsewhere or cross selling other services
- future potential (There’s a big difference between a prospect who’s 45 with $500,000 and a prospect who’s 65 with the same assets)
- the ability to add value
- fit with their core target group
- how enjoyable they would be to work with (the only area where prospects can lose points)
Yes revenue is important, but there are other factors that should be taken into account as well.
How to communicate account minimums to prospects
I agree with this advisor that telling prospects on your website or on the phone that you only take $1 million clients can be off-putting and sends the signal that it’s about you rather than your clients. That said, there are ways to communicate your minimum standards for new clients on your website or in your marketing material – in fact, saying that you have limited capacity for new clients and need to be selective can be seen as a good thing.
The key is to frame your decision-making from the prospect’s point of view, not yours.
You could have a section on your website titled, “ Creating effective partnerships,” in which you articulate the elements that you look for to create an effective working relationship with clients. Put three to five items on that list, including whether clients are genuinely looking for a partnership with an advisor and if they fit into your defined target group.
You could also have a line on your website that says: “ In order to deliver sufficient value for the fees charged, new clients normally have assets of $1 million.” That way you can say over the phone: “ From what you’ve said, I don’t think we’d be able to add enough value to justify the kind of fee we normally charge for an account such as yours.”
Almost all advisors accept close family members of existing clients, regardless of assets, as an investment in the future of the relationship. In other cases, something that can help when a client is just too small is being able to refer them elsewhere.
I sent the advisor from New York City an email with my thoughts and then asked whether there are advisors in his marketplace whose professionalism and client orientation he respects, but whose practices are at a less mature level than his. He could then give prospective clients who aren’t a fit for him their names to talk to.
He responded with an email thanking me for the suggestion: It turns out that recently his firm began a relationship with another advisor seeking to grow his business who has a similar process as theirs and a high degree of integrity. He mentioned that this relieves that uncomfortable feeling if a prospect isn't a good fit and takes the pressure off of asking the qualifying questions.
As you think about your process for attracting new clients, consider the three questions that this advisor asked and put in place the approach that is right for you:
- Should you have a minimum asset threshold for new clients?
- Should there be other factors that you look at beyond just assets?
- How do you communicate your criteria to prospective clients?
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
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