Why Many RIAs Continue Serving Unprofitable Clients
Financial advisors on the whole are an altruistic bunch, sticking with some clients even when they’re not profitable — but it could be costing them the ability to grow, according to a recent survey.
Forty-four percent of advisors, for example, don’t enforce the firms’ stated assets under management minimums, according to a survey of 360 U.S.-based financial advisors by financial services firm Facet Wealth, ThinkAdvisor writes. And 17% of respondents simply don’t have any minimums at all, according to the publication. What’s more, 52% of RIAs say they have no formal process to segment and transition clients who don’t meet the minimums, according to Facet Wealth, ThinkAdvisor writes.
But 56% of those polled also say their top strategic objective this year is growth, the survey found, according to the publication.
“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,” Facet Wealth’s chief financial officer Lisa Rapuano says in a statement cited by ThinkAdvisor. “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.”
At the same time, advisors are handling dozens of clients each. Half of those polled say they serve more than 75 clients, and just 7% are managing fewer than 25 clients each, Facet Wealth found, according to the publication.
It’s no wonder, then, that so many find themselves stretched thin: 45% of respondents say time constraints were one of the major issues in running their business, according to the survey cited by ThinkAdvisor. And more than three in four advisors say they spend 10% to 20% of their total time overseeing accounts that aren’t profitable, Facet Wealth found, according to the publication.