Small accounts can be unprofitable and require as much work as larger accounts.
On the other hand, advisors have various reasons for assessing if they should accept smaller clients. For advisors who do serve small clients, different strategies exist for managing accounts that may otherwise be unprofitable.
Virtually all advisors will face questions over account minimums during their careers. High net worth clients, for example, may ask their financial planners to provide advice to adult children or other relatives who may not have significant assets. In such instances, advisors may feel that they need to take on the relatives in order to maintain good relationships with their existing clients.
In other instances, younger professionals, such as lawyers or doctors, may not have substantial assets yet, but their sizeable incomes may mean they have potential for eventually accumulating considerable amounts of wealth. Another scenario could involve the death of a client and an advisor feeling a desire to help their late client’s children.
Among the various strategies for dealing with smaller clients, one of the newest approaches involves selling the clients to a new advisor platform called Facet Wealth. When discussing this strategy, the term "selling" is a bit misleading, because Facet commits to turning the clients back over to their original advisors when the individuals accumulate at least $1 million in assets, reports Financial Planning.
Facet recently secured $33 million in venture capital. The firm charges clients an average of 41 basis points. It currently has six certified financial planners and each planner works with 250 clients. Facet Wealth maintains that its technology makes its advisors highly efficient.
Other advisors are either building robo advisor platforms or forming partnership with robo advisors to serve smaller clients economically. Charles Schwab is one example. It offers customized portfolios for clients with as little as $5,000 through its Intelligent Portfolio program. Like most robo advisors, it builds, monitors and rebalances portfolios of ETFs for clients.
In another example, Invesco acquired Jemstep Advisor in 2016, reports U.S. News & World Report. The robo advisor had previously marketed its services directly to investors, but it is now used by Invesco for serving clients.
It is part of a large trend of business-to-consumer robo advisors becoming business-to-business operations. In most instances, robo advisors also provide telephone-based advisors.
Not all examples of larger firms adding robo advisors for delivering advice to smaller clients, however, have been successful. In the U.K., UBS recently sold its robo platform called SmartWealth to SigFig. UBS had launched the platform in March of last year, reports Finextra.
Other advisors are turning to technology to help with administrative functions rather than outsource portfolio management to robo advisors, reports Wealth Management.
As part of this strategy, firms can link their virtual assistants to upwork.com or similar websites to automate appointment scheduling, referral dinners, sending thank you notes, or tracking down contact information for prospects. Wealth Management also reports that some advisors are implementing fixed fees rather than asset based fees, which tend to be more popular among Millennials.
Another approach to serving small clients, which is less high tech, is to use fund-of-funds products that maintain specified asset allocations. By doing so advisors don’t have to handle portfolio rebalancing and other functions typically associated with portfolio management.
Some products may consist of mutual fund versions of individually managed separate accounts. Advisors that have already conducted due diligence on the separate accounts, therefore, can leverage their existing working by using the corresponding fund-of-funds products.Last modified on Saturday, 29 September 2018