The fiduciary rule will require most bank advisers to trim their books of business to a much more manageable level. How much is really a guessing game at this point. But for many advisers, especially those who have focused on transactional business, it will be significant.

This was just one of the discussions from our last Industry Leadership Forum in Denver. We hold these meetings in conjunction with Stathis Partners as small, invitation-only gatherings for industry execs to discuss the top issues on their radar screens.

So how many clients can an adviser reasonably manage when they are acting in a fiduciary capacity? The numbers bandied about in our meeting were in the low hundreds: about 200 give or take.

How many do they have now? It's all over the map, obviously, but some of the proprietary research that we've done at Bank Investment Consultant suggests that it's closer to 700, on average, and for many it's over 1,000.

To clarify those numbers, consider this analysis, which Scott Stathis presented at our forum, that suggests an adviser acting as a fiduciary can only serve 150 clients. He assumed that each client would require eight hours of work per year to oversee their money in their best interests. (The breakdown was two hours of work for each of four tasks: annual meeting; meeting preparation; annual phone time; and annual account maintenance.) He also assumed that there are 1,200 potential client-facing hours per year. (Note: This bit came from an article we ran a couple months ago that started with the notion that there are 2,000 work hours per year and concluded that about 40% of that time is consumed by non-client-facing responsibilities.)

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How many clients can a fiduciary manage? 200, maybe 300? And how many do most bank advisers currently have? Our research suggests an average of more than 700.

Once those assumptions are made, it's an easy step to divide the number of workable hours by the number of hours-per-client to arrive at the number of total clients served per year. It's 150.

Granted, you can start tinkering with assumptions to get an answer more to your liking. Maybe advisers can eke out 1,600 client-facing hours, and maybe they'll only need to spend five hours per year on each one. Even so, that adds up to 320 clients. What if they can spend just four hours per client? Now they’re up to 400 clients.

REALITY CHECK
How many clients do advisers really have? Consider some research we did earlier this year for our annual Top Program Managers ranking. In addition to asking each nominee how many advisers they had on their teams, we also asked how many households their teams served. We've never used those results until now, but the average was 750 client households per adviser. The median was a bit lower--about 550--but many of the individual programs had well over 1,000 clients per adviser.

Granted, this is an unscientific poll, but if anything, I'm afraid it may be skewed low. After all, this is a self-selecting group of program managers who felt that they were the cream of the crop and had a chance to be in our final ranking. Most didn't make it, but there are hundreds more out there that didn't apply at all.

So tinker with the assumptions all you want—although 1,600 client-facing hours and less than eight hours per year spent on each client is probably pushing the limits—but I think it's safe to say that most bank advisers will be making major edits to their books.

TEE-UP THE CROSS SELL
Here's one more assumption, on my part, that I feel pretty good about: Advisers don't want to lose too much of their pay. If they generated, say, $200,000 in annual production in 2016 and next year they find themselves with a book of business that's been cut by half, the natural move for them will be to get more profit from each client. (Just how to segment a book was another discussion at our forum, which we'll write about in a future installment.)

To be sure, this situation could be viewed as a positive: With fewer clients, advisers will get to know each of them on a deeper level and really know all their financial needs.

True, but it still remains that the only path to profitability when you have fewer clients is selling more products per client, or raising prices, either of which will bring the attention of regulators in a fiduciary world.

There was a minority opinion at our forum (one participant) who voiced the hope the government would modify the fiduciary rule on this issue alone.

That idea seemed to be dismissed by everyone else, although they offered no other easy solutions. Again, though, the one wild card we didn't discuss was President-elect Trump (this meeting was before the election.)

Even if the rule is scaled back, though, it may not help advisers. A number of banks are on track with their fiduciary plans and may not reverse course even if they legally can.

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