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Why post-fiduciary calls for smaller books are right

HOLLYWOOD, Fla. — Bigger is not always better when it comes to sales territory size.

There has been a rule of thumb for years that bank advisors would perform best if they had a smaller deposit base and fewer clients. The idea picked up steam recently when some banks were limiting advisors’ book size to help comply with a fiduciary standard (the idea being that advisors can’t put in the time needed to act in the best interest of too many clients).

But now, there is new data to quantify these ideas. “This could truly change our business for the better … it’s something we didn’t have data on before,” said Peter Bielan, a principal of Kehrer Bielan Research & Consulting last week at the annual BISA conference in Hollywood, Florida.

He moderated a discussion that included Arthur Osman, LPL’s executive vice president for institution services, and John Olerio, Webster Bank’s director of its investment services program. They unveiled the conclusion from their study that the optimal deposit size per advisor is $200 million to $245 million.

The advisors in that range may not have had the highest production in absolute terms, necessarily, but they outperformed what would have been expected from their opportunity to the tune of $32,000. And the advisors in the bigger deposit range of $365 million to $600 million? They underperformed by $27,000. (All the data used by Kehrer Bielan came from LPL.)

So what drove the differences in production? Advisory business, Bielan said. Advisors that had more advisory business generated more revenue across the board at all deposit levels, Bielan said.

Kehrer Bielan and LPL also analyzed the optimal number of clients. And it turns out, the post-fiduciary call for smaller books is right: a client list of 200 to 300 is best. Using the framework of the study, those advisors overperformed by $39,000. Advisors who have more than 800 clients — and in the bank channel, that’s not uncommon, Bielan said — underperformed by $46,000.

The regression analysis didn’t account for varying skill level on the advisors part; rather, it looked at various metrics including deposits, number of clients, assets under management and tenure, among others.

To be sure, there have been research papers in the past concluding that banks should hire more advisors to get the full benefit of an investment program (which implicitly means that each individual would get smaller territories). And these issues have certainly been part of the long-standing question of how to best segment a book of business.

But now there is data, and a strategy to help persuade advisors, says Osman. “We went on gut feelings in the past and tried to persuade advisors that they wouldn’t lose business if they gave up clients and business. Now we know the right lens to view this through is advisory business.”

Indeed, this has always been a tough sell to advisors, of course, who naturally want as big a universe as possible to draw from.

“Advisors often go into this with the mindset that they don’t want to give up one single client or lose any assets,” Olerio said.

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