When More Is Less
More services don't necessarily lead to higher profits

In the U.S., we’re all about “super size.” More is not only more, more is better. So it’s logical to assume that the more services offered by an advisory firm, the stronger the business. Unfortunately, that assumption is not necessarily correct. According to our research, top performing advisory firms actually tend to offer a narrower range of services—which surprisingly translates into a more profitable business. Of all the RIA firms that participate in Rydex AdvisorBenchmarking’s survey research, 35% offer six or less services to their clients. And it is these same firms that reap the benefits of wider and healthier profits—$450,000 compared to $284,000 for those firms offering more services (see chart 1)—a substantial 58% difference.

Identifying that more services don’t necessarily translate into more profits may also provide a revealing look at today’s investment clients. The savvy investor may not be looking for a “jack of all trades” advisory firm. By offering an exceptionally wide band of services, a firm could be signaling that they don’t have an area of specialty or expertise. This is not to say that providing multiple products and services isn’t an important part of a successful wealth management business model; however, there is something to be said about these “do it all” firms. For example, a company that hires its own accountants or attorneys will likely have higher overhead costs. Conversely, in order to provide clients with a wide range of services without housing them internally, many advisors are utilizing strategic alliances with specialized professionals. This strategy allows firms to offer high-level, polished expertise to their clients and prospects, while creating a “two-way street” for client referrals (see Practice Edge August 2005).

Less May Be More
Besides having higher profit margins, firms offering fewer services share several other winning characteristics that contribute to their success. Specifically, these advisors:

• Utilize written business plans.
• Maximize the utilization of partnerships with other professionals, such as CPAs, to generate new clients. In fact, 70% of advisors who offer fewer services utilize professional referrals compared to about 40% of the other surveyed financial professionals.
• Focus primarily on serving high net worth clients and institutions. These more focused firms have about 20% more high net worth clients compared to other firms. 
• Require a high minimum account to maintain focus on larger clients—with an average minimum account size of $515,000 compared to $345,000 for the remaining firms.
• Offer a concentrated range of wealth management services.

Yes, opportunities for advisors who are capable of adapting their practices to the new environment are tremendous. Success in today’s marketplace is determined by sound business strategy, effective management of resources and focus on the services clients need most delivered with the highest quality. 

So does offering more services bring in more clients? Probably. Does it bring in more profits? Probably not.