Striking the Right Balance: How Many Clients Should an RIA Have?
This is the 22nd installment in a Financial Planning series by Chief Correspondent Tobias Salinger on how to build a successful RIA. See the previous stories here, or find them by following Salinger on LinkedIn.
Finding the right number of clients to create a profitable business without overextending a financial advisor’s capacity to serve them is essential for any advisory firm. But newer registered investment advisory firms must strike that balance amid the pressure of building a new business that relies on strong customer relationships. Experienced advisors and other experts point out that the right client headcount varies widely across firms and depends on factors like the RIA’s client niche, menu of services, fees, and assets per household. The availability of support staff and internal or external resources also plays a role.
Julie Genjac, the vice president of applied insights for Hartford Funds and a practice management coach to advisor teams, emphasizes the importance of determining how many clients an advisory firm wants to serve. While there is no one-size-fits-all number that applies to all advisors due to the diverse range of services offered, advisors must consider their own capacity and service model.
Cases in Point
At Pearl Planning, based in Dexter, Michigan, founder Melissa Joy maintains a client-to-advisor ratio of approximately 100 to 1, with 302 customer households across three planners. On the other hand, SageMint Wealth in Irvine, California, works with 190 households, with Managing Partner Anh Tran meeting regularly with 135 of them. The ideal client headcount varies depending on the depth of services offered and the availability of support staff.
According to a report by The Ensemble Practice, relationship managers across advisory firms have an average client headcount of 164. Larger firms tend to have more clients per advisor, thanks to the leverage provided by entry-level associates and service advisors who handle various tasks. It’s essential for advisory teams to segment clients based on various factors and have a clear service model for each group.
The Numbers and How to Calculate Them
Advisors should continuously evaluate their client headcount based on their capacity and business model. Client segmentation, compliance requirements, and staffing levels all play a role in determining the optimal number of clients. It’s crucial for advisors to assess whether they are maximizing their time and resources effectively.
Lessons Learned Along the Way
Client segmentation, compliance requirements, and business model are key factors in developing the optimal client headcount. Advisors should be mindful of their capacity and avoid taking on more clients than they can effectively serve. Hiring additional staff, such as a head of operations, can help alleviate the workload and prevent burnout.
Ultimately, the right number of clients for an RIA will depend on various factors, including the services offered, the size of the firm, and the availability of support staff. By carefully evaluating their capacity and client base, advisors can ensure they are providing high-quality service to their clients while maintaining a profitable business.
Source: Here
