The Fact:
Two thirds of advisors say there is an asset level below which they consider a client unprofitable. For planners the profitability threshold is $52,500 and for brokers that number jumps to $87,500.

The Implications:
Financial advisors who focus on profitability at the client level recognize that all clients have a cost, although that cost varies by practice. From that point, it’s a small step to recognizing that a client whose annual contribution to practice income does not exceed costs, is unprofitable. Based on the logic of profitability, advisors should see setting minimum asset or revenue levels for clients as a natural next step.

The Idea:
It is important to understand your profitability threshold on a client-by-client basis. That threshold is equal to the hard costs of a client relationship plus some reasonable return for the time invested. Let’s assume, for example, that the fixed costs of your practice result in an allocation of $125 per client, your client communications costs are $30 per client and you devote a minimum of three hours a year (at $150/hour) to each client. In this case, your profitability threshold is $605/year.

The Next Step:
The Business Success Kit provides you with the tips, tools and templates that you’ll need to enhance practice productivity and profitability. It’s the most practical and comprehensive guidebook available for financial advisors. For more information, visit www.caifastore.com and click on the Business Success Kit.