Financial advisers lack the strategies and tools to service small accounts effectively, according to findings from a recent Russell Investments survey.
The Russell market research team queried 100 advisers about their service of small accounts. The results confirmed our view that while advisers want to help smaller clients save, invest and ultimately emerge into a new level of financial security, there is a general lack of turnkey solutions and supporting tools that can help them serve such clients efficiently.
This is a concern because the assets of many such clients remain frozen from the recent economic recession and the associated erosion of wealth.
We think that small-account clients represent an important relationship- and business-building opportunity for advisers. However, given the market climate the past 18 months, one can't blame advisers for focusing on their top-tier clients at the expense of less profitable accounts.
The recession unfortunately hit the bottom line pretty hard, forcing staff reductions and other losses. In such a climate, it is tempting to focus on recovery-oriented goals.
Besides, there doesn't seem to be enough time left in the day to serve the increased needs of smaller-account clients effectively.
The Russell survey explored this predicament. We screened for advisers with at least $10 million in assets under management, focusing on those who have at least 200 clients, spend at least some time on investment selection and consider using asset allocation funds at least part of the time.
The survey results show that the prospect of serving smaller-account clients isn't the problem, nor is having too many such accounts. The challenge is having too many products spread across too many clients.
When we present this concept to advisers, the general reaction is: “You're right; it's not them, it's me.”
Based on the survey, though, such clients remain low on the priority list, particularly if you look merely at the current and ideal number of households advisers serve, their overall book of business and their target asset level.
For example, respondents averaged 322 clients each but would prefer having 50 fewer. Further, nearly one in three said they would like to have a more “elite” practice with less than 200 households, and about 42% said that they would prefer to remove smaller accounts from their business to improve their overall liquidity.
Of the 88% who said that they treat small accounts differently, 74% said that they encourage those clients to use a simple asset-allocated or lifestyle/life cycle product where the asset allocation and investment selection decisions are made by a third-party management company. However, 57% said that they aim to limit the amount of time spent with such clients, and 27% encourage them to rely on available online resources for account information and answers to their questions.
Several factors drive the potential for growth in this client segment, including the mobility of workers and a large number of smaller, but growing, individual retirement accounts. Clearly, advisers need a more efficient approach to working with such clients, perhaps now more than ever, in order to commit time to new and faster-growing clients as we all rebuild from the recession.
In addition to products, advisers need tools to allow them to make the best use of their time.
In the survey, a vast majority of respondents said that they would recommend a single, comprehensive asset-allocated product, specifically an option representing a complete managed portfolio matched to the risk tolerance or timeline of the investor. Respondents generally agreed that this concept has high or very high appeal, particularly if it is well-diversified, offers respectable performance that compares favorably with peers', comes with capable third-party management and, of course, is cost-effective.
Smaller-account clients are an underserved group of investors who receive little marketing attention, but they don't need to be a drag on the business.
Advisers, and their clients in this segment, would be well-served with a fresh approach to high-quality and personalized, but still cost-effective, service.
Someone who has at least a base investment and savings plan is very different from someone who simply owns products. With today's products and online tools, we as an industry can deliver both responsible advice and responsible implementation. These clients need that solution now.
Don Gartlan is director of consulting services for the U.S. private-client-services business at Russell Investments, a money management firm that features asset allocation products.
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