Financial Advisors:

bigger is better.

Bluerating | August 2020

Currently, networks of financial advisors are living an extraordinary time thanks to three strong points inherent to their service model: 1) the proactive attitude adopted by financial professionals; 2) digitalization; 3) a strong ability to operate offsite.

The average portfolio of financial advisors has more than doubled over the past fifteen years (from 10 to 25 million); overall, the value of the assets managed by financial networks has increased by 250%; similarly, the number of clients has increased from 8% to 15% of Italian savers.

However, the number of financial advisors with an active mandate conferred by financial networks has remained rather stable or decreased slightly.

This means that 1) one can’t improvise being a financial advisor, but it takes time and competence; 2) financial professionals with below-average portfolios struggle to survive more than they did before.

Some financial networks make available to FAs a wide range of services including mortgages, insurance products, consumer credit and services of real estate and patrimonial consulting – which represents another source of commissions.

However, today the profession of financial advisor is still mostly associated to asset management and investments.

Over the years, banks and financial networks have started to select their financial advisors, revoking the mandate of undynamic professionals with below-average portfolios.

Today, this is considered a well-established practice in large and well-known financial networks, while newly established networks appear more indulgent.

As a result, there is a tendency to favor FAs with above-average portfolios; less so, financial advisors with smaller portfolios, unless they are associated to (very few) promising young professionals.

As for reassignments (that is, the reallocation of the portfolios of the FAs who have abandoned their job), the best clients tend to be assigned to the most skilled and resourceful professionals.

Moreover, the quality of the portfolio is often associated to size – in other words, small portfolios tend to be associated to several small and medium-sized clients (mass market or lower affluent clients).

The client profile explains, in good part, the concentration of portfolios – clearly, experienced and proactive financial advisors tend to attract private and, sometimes, HNWI clients.

This type of client – naturally more demanding – allows for obvious economies of scale; in fact, on average, the management of one private client is equivalent to the management of five affluent clients. Today, high-end clients represent 30% of the portfolios of FAs.

Therefore, the combination of a need for greater skills, the presence of more demanding clients with larger assets and reduced margins leads to a process of natural selection which tends to penalize financial advisors with less initiative and smaller portfolios.

As a consequence, it is increasingly important for financial advisors to select a bank or a financial network that is able to offer a cutting-edge digital platform, as well as a wide and dynamic range of services, products and external partners.

This allows FAs to dedicate less time to undemanding clients with smaller assets and, on the other hand, to devote more attention to the growth of clients with higher potential.

34% of FAs expect that they will not be working for their current bank or financial network in five years’ time (Source: FINER® CF Explorer); about one third of them imagines they will abandon the profession entirely. But the real question is: how many of them will do so voluntarily?

Nicola Ronchetti