"What does it take to succeed at the highest level?" is a common question among both new and not-so-new entrants to the financial industry.

PriceMetrix is an industry leader in advisor productivity. Launched 10 years ago and based in Toronto, today it works with 20,000 advisors from 20 firms in the United States and Canada.

Recently, PriceMetrix released a thought-provoking analysis of the role that smaller households play in hindering advisors from achieving peak levels of financial success

Analyzing the books of 8,000 advisors from 15 firms, they divided client households into three categories:

• Small - under $100,000 in assets
• Medium - assets of $100,000 to $1 million
• Large - assets over $1 million

Is it all about the money?

A note on making the right decisions for your business:

There are many factors that drive advisor satisfaction beyond simply making money, not the least of which is feeling good about the difference we're making in clients' lives - and it would be wrong to suggest that maximizing income is all this business is about.

That said, when making business decisions on things like the kinds of clients you focus on, it's important to understand the tradeoffs you're making along the way.

Four key conclusions

PriceMetrix drew four key conclusions:

1.     Most advisor portfolios are concentrated in small households

2.     There's very low probability that small households will grow over a 5 year period

3.     With tenure in the business, most advisors shift to larger clients - the faster this happens, the more quickly advisors move to higher levels of production

4.     Reducing small households can significantly improve productivity

The role of small households

PriceMetrix quantified what many advisors had suspected -  on average, smaller households represent a disproportionate number of clients relative to the revenue they generate.

Here's the data for the average advisor on small, medium and large households:

                                                % of households            % of revenue

Small accounts (<$100K)                        52%                                9%

Mid sized accounts ($100 K - $1M)            42%                               44%

Large accounts  (>$1M)                           6%                               47%

In other words, the average advisor could give up the bottom half of his or her clients and lose less than 10% of revenue.

The chances of small households growing           

Many advisors justify their smaller clients by talking about the future potential they represent.

And certainly that's true in some cases - I recently spoke with a high earning, professional couple in Vancouver in their mid-thirties who've paid off a university loans and a $2 million house and are saving $300,000 annually. Even with relatively low assets today, few advisors would turn this couple down.

This couple is the exception however. Over the five years from 2005 to 2010 (remembering that this was a particularly ugly period in markets), only 10% of small households became mid-sized households and just 1% went from assets of under $100,000 to over $1 million.

Over this five year period, small households were 100 times more likely to leave than to become  million dollar clients and it took, on average, almost 250 small households to produce one large household five yest later.

The evolution of advisor books over time

As you'd expect, advisors do migrate to larger clients as their careers progress,

But this doesn't always happen and doesn't happen to the degree you might expect.

Advisor length of service            < 3 years                        >10 years

            Small                           66%                                   51%

            Medium                        31%                                   42%

            Large                            3%                                    7%

Note that PriceMetrix finds that the more this shift happens and the sooner this happens, the more likely the advisor is to generate annual revenue of $1 million or more.

And there is a marked contrast between advisors who've been in the business ten years who've evolved to focus on larger clients and those whose mix still looks like advisors in their first three years - those who've made the shift to larger clients have twice the assets and almost two times the revenue of those who haven't.

Advisors can take action to increase productivity

The number of small clients is the one of the biggest drivers of productivity.

Here's an example looking at the book profile of million dollar books vs all others

                                Million dollar books                        All others                        Difference

            Small               34%                                        50%                                 (16%)

            Medium            54%                                        45%                                 + 9%           

            Large               12%                                          5%                                  + 7%           

Note that the biggest difference between the million dollar books wasn't the number of large million dollar plus accounts, it was rather the number of mid-sized $100K to $1Million clients.

Not every advisor aspires to be a million dollar producer ... many are happy making a good living while serving appreciative, small and mid-sized clients.

At the same time, a solid level of financial success is essential to serve clients well.

And this research from PriceMetrix sheds insight on one aspect of the formula to achieving that threshold of success.

To read the full report, click:  http://www.pricemetrix.com/public/pdfs/PriceMetrix%20Insights%20-%20Small%20Household%20Metrics.pdf