Best Practices for Managing Small Accounts

Posted by Mark Piquette on March 12, 2014

Most RIAs have grappled with the question of how to manage small accounts in a way that is efficient and profitable. In its latest Trend Advisor paper, “Small Accounts, Big Opportunities,” Trust Company of America addresses some of the common challenges of handling small accounts and offers suggestions on how to manage them more efficiently. Gordy Wegwart, President and CIO of Verity Asset Management, discussed the Trend Advisor paper and best practices for small accounts as part of a recent Genius Session.

40% of the Genius Session attendees cited portfolio management as the biggest challenge around small accounts, while one-third said they struggle with how to determine the minimum account size to accept. The poll findings are consistent with what we know about the advisor industry: 55% of advisors said portfolio management was their most time-consuming activity, according to the most recent AdvisorBenchmarking RIA Trend Report from—and small accounts can be just as time-consuming as large ones.

So what’s an advisor to do? Gordy and other advisors polled by TCA offer common pieces of advice: 

  • Tailor fees: Termination rates tend to be higher among small accounts because, in general, investors with small accounts have less experience and are less willing to wait for a strategy to develop. Advisors should tailor fees for small accounts to reflect this reality. A higher startup fee, offset by lower fees down the road, can help advisors cover costs while incentivizing clients to be patient.
  • Set minimum balances for each strategy: Advisors who are willing to work with small accounts should still set a minimum for each strategy. Otherwise, assets cannot necessarily be allocated according to the diversification the strategy requires.
  • Use asset allocation models to manage small accounts: Models save advisors time by allowing them to create investment strategies for broad investor profiles, accounting for age, risk tolerance and needs. With models, advisors can provide small-balance clients with managed portfolios while at the same time managing them effectively and efficiently.
  • Invest in the right technology: To effectively oversee small accounts, advisors need the right tools. TCA’s technology platform allows advisors to rebalance accounts in just a few clicks, bill clients quickly and efficiently, and save clients money through asset-based pricing and model-level fees.

The right strategies can make managing small accounts not only more efficient, but more profitable too.

“In the first 3 years after we implemented TCA’s technology, small accounts were the most profitable segment of our business,” said Jerry Wagner, President and Chief Information Officer, Flexible Plan Investments, Ltd.

To learn more about TCA’s technology and how it can help you manage small accounts, call 1.800.955.7808.

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