In fact, advisors who serve households with less than $250,000 in assets pay a penalty for doing so. For every small household in an advisor’s book, predicted future revenue is expected to decrease by $270 per small household, per year, according to the research.
“Our data shows that advisors with a greater number of small households will underperform other advisors,” Doug Trott, president and CEO of PriceMetrix, said in a statement.
The difference is such that the report urges advisors to consider exiting or transferring households with less than $250,000 in assets to a different service channel.
Inspired by the 2011 baseball movie, MoneyBall, the report studies potential predictors of future production growth by using end-of-year 2006 figures for advisors and analyzing them in light of 12-month total revenue five years later.
The study found that a good predictor of future production – apart from household asset size – is the depth of an advisor’s client relationships, as measured by the number of retirement accounts in their books of business. Each retirement account, such as an IRA or 401(k) plan, increases expected annual future production by $510, according to the findings.
Another predictive measure is average accounts per household. Advisors with high average-accounts-per-household scores had substantially higher performance than those with below-average scores.
“More accounts per household is indicative of deeper client relationships and a higher share of investable assets, which as it turns out is highly predictive of future production,” Trott said.
Another key finding is that fee revenue is much more predictive of outperformance than transactional revenue. Advisors with greater production coming from fee accounts are expected to be much more productive than those deriving their revenue from transactional or trailer business.
“What this tells us is that advisors, managers and firms must differentiate more aggressively between the different sources of revenue in their books of business,” said Trott.
