Secrets of top HNW advisors

By Kate McCaffery | November 14, 2005 | Last updated on November 14, 2005
4 min read

(October 2005) The difference between an average performer and a high performer in the financial services industry is dramatic. A review of how top advisors spend their time, and the amount of revenue they generate in turn, leads to a very solid conclusion: If you want to outperform, you need to get out of administration, and get in front of clients.

“High performers spend much more time in client facing activities. It’s probably common sense when you think about it, but not necessarily common sense in practice,” says David Irwin, senior director of the VIP Forum. “We found that everyday advisors tend to overweight their time in non-client facing activities, administrative duties, internal communications and service issues. High performers, on the other hand, are actually contacting the client, creating sales plans, doing sales calls and competitor analysis.”

In a Franklin Templeton Investments webcast to promote the company’s managed solutions products, Irwin also discussed the growing number of wealthy clients, as well as surveys of HNW households that show which attributes those clients are looking for in an advisor.

Within the next 10 years the value of wealth transfers in Canada is expected to top $1 trillion dollars. That’s about twice the size of the total assets in Canada’s mutual fund industry. And with this shift, more than a million households in Canada will have more than $1 million in investable assets.

Pierre McLean, vice president of national sales at Franklin Templeton Investments, highlighted statistics that suggest more than 50% of the wealth in Canada is currently in the hands of people over the age of 60. “Something to the extent of 450,000 small, privately-owned enterprises are going to change hands. Only 17% of those enterprises are going to be passed on to the next generation. That means for many of these people who own these enterprises, they will try and sell, crystallize those assets, and someone is going to be called on to manage those assets,” he says. “It’s a tremendous opportunity.”

McLean says current estimates put the wealth transfer numbers between $300 billion and $550 billion in the next seven or eight years. “The transfer of wealth is going to be even greater when you consider the value of insurance contracts out there. It could well reach north of $1.2 trillion,” he says. “The impending growth is tremendous. The question is, to what degree is your practice ready to accommodate people?”

A VIP Forum survey of 1,000 HNW households in North America found that a commitment to excellent service was the number one quality on a list of advisor attributes that clients said were extremely important. Quality advice came second, while details like track record of returns and product availability ranked 5th and 8th respectively on the list.

“It’s service and advice. It’s the time spent working with the client directly that’s important, outside of products and returns,” says Irwin. “The problem, the challenge is that in many cases our books are getting bigger and bigger, which actually limits our ability to advise, to actually work with and build relationships with clients.”

To illustrate his point, Irwin reviewed the average number of clients served by average players and top performers. He says bank brokers, on average, handle about 378 clients who, in turn, could have between three and five accounts each. Regional broker dealers reported having an average 357 clients each, while registered investment advisors reported as many as 298 clients each on average. Private bankers on the other hand, had only 170 clients each. At the same time, top quartile performers across the industry, based on revenue growth, have only 120 clients each on average.

Of those, average performers generate roughly $243,000 in revenues each year while top performers bring in around $686,000 annually. The most telling statistic Irwin produced however, related to the revenues generated by top advisors who were also a HNW client’s primary source of advice.

“As a matter of fact, being the prime provider, the number one guy managing the largest share of a client’s book is most important to our economics,” he says. The top advice provider in a HNW relationship brings in about $22,000 a year from the client. Second tier providers earn roughly $6,000 a year from the client while the third string player only gets about $2,500 a year from the client.

“These top performers are spending more time advising the client, working with the client and cross selling to the client. When you think about it, our business is dramatically geared to cross selling, expanding the share of wallet,” he says. “A key strength in that growth, that revenue growth, is being able to develop close, trusted personal relationships with their clients.”

Filed by Kate McCaffery,


Kate McCaffery