Are smaller accounts worth the effort?
10 reasons why having more smaller accounts is not a bad thing for an advisor or benefits broker.
The benefits business and the wealth management business are often on opposite sides of an argument. Wealth management advisors seek a smaller number of high net worth (HNW) households with lots of assets. The benefits business might mean having many individuals buying health insurance. You may have one foot in each camp. Are smaller accounts worth it?
1. Diversification. Lets assume a wealth management advisor seeks $100 million in assets under management. This might be 100 clients averaging a million, or it might be only one client with $100 million. The fewer the clients, the greater the hit to revenue when you lose a client.
Upside of smaller accounts: When you have many smaller clients, retention and revenue can become a numbers game. You might lose some here and there, but the hit to revenue isn’t fatal.
2. Abandonment. A couple of decades ago, the major financial services firms chose to move upmarket. Local advisors opened account relationships with $250,000 asset minimums. Smaller accounts were serviced from a central call center.
Upside of smaller accounts: Firms like Edward Jones, whose business model started by servicing smaller communities, saw an entire market segment literally abandoned by the major players. Servicing smaller relationships provided an opportunity for growth.
3. Volume. Kemmett Wilson, the founder of Holiday Inn, died in 2003 at age 90. His obituary made an interesting point. He was asked why he didn’t choose to build hotels that catered to rich people. He said: “You take the rich people. I’ll take the rest. The good Lord made more of them.”
Upside of smaller accounts: The higher the minimum, the smaller the prospect pool. If “everyone” is targeting that segment, the competition is stiff.
4. Smaller becomes bigger. When you open an initial account, it’s unlikely the prospect will give you all their assets to invest. They need to “try you out,” learn if you are trustworthy and determine if it’s a good fit. Then more money follows.
Upside of smaller accounts: These smaller clients might be bigger clients in disguise.
5. Smaller-becomes-bigger revisited. Each health insurance relationship might not bring in much revenue, yet it’s a gateway to the wealth management business or other financial services products.
Upside of smaller accounts: You get to build an initial relationship, then expand on it.
6. People with retirement plans…retire. You handle a company benefit plan, including retirement accounts. Employees might not be putting in much, but they are saving for retirement in other ways. When the time comes, the pot is bigger.
Upside of smaller accounts: Some small clients might lead to large retirement rollover accounts.
7. Built-in audience. You provide benefits to a company’s employees. These need to be explained. As people retire, can they be gathered as an audience every month to explain what happens next?
Upside of smaller accounts: You have reasons to build an audience of prospects for other business.
8. High tech, high touch. Your firm provides tools like a website addressing FAQs. Your client firm has an HR department, the first point of contact for an employee. When the question gets complex, you get involved.
Upside of smaller accounts: You can provide a higher level of service to people who really need help.
9. Retirement income. Retirement and income go together like peanut butter and jelly. If you have a pool of people retiring, they will need…income. You have products to meet that need.
Upside of smaller accounts: Not everyone will want an annuity, but some will.
10. Referrals. Each smaller client has a circle of friends and family. If you let them know how you help people and how they can contact you, now you are a resource.
Upside of smaller accounts: Many, many clients means more potential for referral business.
The key to working with smaller accounts is having a system that can handle the volume of requests and pull out the ones that really need attention or represent an opportunity. You likely have this system in place. More smaller accounts represents the potential for more bigger accounts.
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