Unlocking Advisor Capacity to Elevate Client Impact

Bigger isn’t always better. For financial advisors, a smaller book of business with strong, enduring relationships can be more lucrative than a sprawling portfolio with limited opportunities for meaningful engagement. It’s an approach that centers quality over quantity, and it’s been proven to propel wealth management growth: LPL Financial’s recent Advisor Growth Study found that the most successful financial institutions and advisors prioritize deepening engagement with clients and tailoring support for complex needs.

Despite the example set by top-growing advisors, many institutions and advisors struggle to take the steps necessary to establish a scalable advisory model. Let’s take a closer look at why.

Assessing Barriers to Advisory Growth

As institutions and advisors consider pivoting to a model with deeper client service, they may encounter concerns about reducing client volume, sacrificing up-front revenue, and risking community ties.

• Client volume: It can be hard for advisors to let go of high account volumes. After all, an enormous book of business may seem like a good thing — especially if it’s built through a steady stream of referrals from a parent institution or local branch. But a high number of accounts may mask the reality that many of those accounts generate little revenue.
• Up-front revenue: If an advisor is willing to focus on fewer accounts, they may still be reluctant to embrace another core element of deeper client service: switching from a product-based model to an advisory one. Pivoting away from product sales means sacrificing upfront revenue. While the advisory model enables a recurring revenue stream, some advisors might be understandably nervous about sacrificing short-term gains for long-term ones.
• Community ties: Much like the local baker or mail carrier, some advisors pride themselves on being familiar faces in their communities. If an advisor optimizes their book to concentrate on advisory and service fewer accounts, that might entail giving up local clients — potentially imperiling one’s reputations as the local, go-to advisor in their neighborhood.

Overcoming Obstacles with Education and Segmentation

Educating advisors on how much they stand to gain from book optimization — and how much they lose by skipping it — can be a powerful incentive for wealth management transformation. It’s not unusual for the bottom half of an advisor’s AUM to generate 1% or less of their revenue. Yet those low-revenue accounts often lead to a disproportionate number of service calls. Those calls consume bandwidth that advisors could dedicate to servicing higher-value accounts instead.

How advisors determine which accounts to prioritize may vary, but patterns from top-growing advisors provide a helpful benchmark: According to LPL’s Advisor Growth Study, top-growing advisors saw the bottom half of their books generate 7% of their revenue, while the top tier clients (10% of AUM) generated between 30 and 60% of their growth. The statistics on product-based sales vs. advisory revenues are also instructive: Among top-growers surveyed, 60% of AUM was allocated to advisory.

Of course, the numbers don’t tell the whole story — and they may not be enough to sway every advisor, particularly those reluctant to part with long-time clients, even if their accounts produce little revenue. Fortunately, segmentation provides an answer. As the Advisor Growth Study notes, segmentation isn’t about cutting clients so much as it’s about serving each client intentionally.

A savvy approach to segmentation includes creating efficient service options for small account holders. Institutions can establish centralized teams of salaried advisors; they can create licensed branch employee (LBE) programs for tellers and other branch employees; and they can hire junior advisors. These lower-cost solutions meet the needs of entry-level retail investors and other small account holders while financial institutions and experienced advisors pursue models that make sense for their business. In addition, such approaches can strengthen an institution’s talent pipeline, as LBEs and junior advisors learn from working with small accounts before advancing to more-senior roles.

Getting Started

Incremental steps may be key to successfully promoting book optimization and advisory relationships. Financial institutions can designate some of their leading advisors as culture champions, working with them to set new standards and inspire their peers. Institutions can also encourage segmentation on a small scale — moving accounts of $100,000 or less from advisors to LBEs, for instance — before promoting more significant changes. Once advisors reap the rewards of smaller moves, that could clear the way for greater segmentation in the future.

While change may be daunting, it’s entirely possible. Financial institutions collaborating with LPL can and do achieve the changes necessary to sustainably grow their wealth management programs.