Planners expect big revenue jump this year

Unflinching optimism continues to dominate the outlook of the financial planning community, despite the gloomy forecast from the media, according to the latest quarterly research from Russell Investments.

“Right now, the news headlines seem to reinforce everything that’s going wrong, but financial advisers who are more experienced are seeing a substantial amount of optimism,” said Kevin Bishop, director of practice management for Russell’s private client services business.

For instance, when asked about growth projections for 2011, three-quarters of respondents said that they envision revenue growth of at least 10%, while just 3% of respondents said that they expect no growth in revenue this year.

“This shows that financial advisers are generally confident of their own abilities, and that they are always seeing the glass as half full,” Mr. Bishop said.

Granted, the quarterly survey of 800 financial advisers was conducted in late January and early February, and thus didn’t include the unfolding disaster in Japan. The survey was conducted in the midst of the political unrest that swept across Africa and the Middle East, however.

Surprisingly, Russell found that 86% of respondents identified themselves as optimistic about the capital markets over the next three years. Three months ago, that figure was less than 60%.

But though advisers have moved up the optimism ladder, many of their clients remain more cautious, according to the findings.

When asked what their clients think about the capital markets over the next three years, advisers said that 36% are optimistic, while 50% are neutral and 15% are pessimistic.

The client optimism gauge improved markedly from three months ago, when advisers pegged client optimism at just 7%.

Mr. Bishop said he is concerned that most advisers expect revenue growth this year to come from business expansion, mostly in the form of new clients.

A lot of advisers don’t realize that many of their clients could be draining resources and revenue from the business, he said.

When asked how they segment their client base, 38% said they base it on assets under advisement, and another 23% said that they don’t segment their client base.

According to Mr. Bishop, the correct way to segment clients is by the revenue that they generate for the business, a category selected by just 16% of respondents.

Segmenting clients into three groups of A, B and C, advisers often find that they are spending too much time and resources on those clients who generate the least amount of business revenue, he said.

‘SERVICE BURDEN’

“C clients usually generate about 2% to 4% of revenue, but they require an equal share of the service burden,” Mr. Bishop said.

In his experience, the B clients contribute between 25% and 30% of revenue, and A clients make up 70% to 80% of revenue.

“We ask advisers to consider their C clients to decide if they should even be working in that space,” Mr. Bishop said.

It is a mistake to assume that assets under advisement can be equated to revenue generated.

“Sometimes a client with a lot of assets can be a low-revenue client,” Mr. Bishop said.

Of course, the segmentation of clients will be unique to each adviser’s practice and experience.

For newer advisers, the C-level clients, many of whom are young doctors or other fledgling professionals, might represent an investment in future business income and development. “But if you’re a baby boomer adviser in your mid-50s, working with C-level clients is not the best use of your time,” Mr. Bishop said.

E-mail Jeff Benjamin at [email protected].

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