So much of the focus today in the advisor world is on the relative growth of RIAs vis-a-vis their competition at wirehouses and other traditional B/Ds, what often gets lost is the investors that they are all going after. And recent statistics show a worrisome trend – the trend of investors deciding to “do-it-themselves” has taken on momentum.

This trend favors banks and self-directed firms and the expense of full-service firms. According to a recent study by Hearts & Wallets, most firms showed a decline between 2011 and 2012 in investors “intent to invest more” and “intent to recommend.” (Two exceptions were Vanguard and T. Rowe Price.) Full-service brokerages share of households with $1 million or more to invest fell from 36% in 2011 to 32% in 2012. On the other hand, banks share increased from 13% to 17% during the same period of time; the survey data used included 5,400 households. According to the results, less than 2/3 of investors now use an investment professional.

The question is, why are investors so frustrated? The study indicates that investors:

• Don’t understand their advisors’ (or potential advisors) value proposition
• Don’t understand the pricing models; and
• Don’t feel that they have a way to evaluate advisors other than using absolute return.

I actually see some good news in this. All three of these frustrations, while understandable, are easily addressed. Let’s take them one at a time.

If an advisor doesn’t have an easily understandable and visible value proposition which they can articulate, then they don’t deserve the business. Whether you have an elevator speech, a tag line or a mission statement, you better make it clear very early on why you are different from the thousands of other advisors out there. If you don’t, shame on you.

As for pricing, if you aren’t upfront about your pricing, and if it isn’t fully transparent, then you have a problem. This is another issue that if addressed head-on early in the relationship can actually be used as a selling and differentiating point. If you wait until the client has to ask about it, then it’s probably too late.

And on the measurement issue, advisors would be well served to adapt some version of goals-based analysis. If you take the time upfront to learn about the client, help them define goals and milestones, and show them a pathway to get there (and measure progress along the way), you should have a long-term client; if you don’t, then maybe you’re in the wrong business.

There is great opportunity for those advisors that rise to the occasion – because I have no doubt that many of these investors who try to go it along are going to be very unhappy with the results and will be looking for an advisor again very soon.

PriceMetrix, a leading industry think tank, recently issued a new report entitled “Moneyball For Advisors.” The study’s name is a takeoff on Michael Lewis’ book which detailed how the Oakland A’s used statistics – rather than high priced players – to assemble a championship-caliber baseball team. If you would like a copy of the study, please contact me.

The question PriceMetrix set out to answer is whether or not analytics can be used to gain an informal advantage in recruiting and advisor development. Their answer – and the data do seem to support it – is definitely yes. While I will focus on how advisors can learn from this study, PriceMetrix also analyzed the data in a way that should help recruiters and companies hire advisors who have a better chance of succeeding in the long-run (and thus in many cases justifying the paying of a large up-front bonus).

So, according to the statistics, what should advisors do to maximize their future production?

• Maximize the percentage of fee-based business in their book;
• Have a high number of households with more than $250,000 in assets;
• Have a willingness to “fire” households with less than $250,000 (and to minimize the number of them);
• Have deep client relationships (measured by multiple accounts per client and having a large number of retirement accounts); and
• Be experienced – all other things being equal, past success bodes well for future success.

Advisors can control every aspect of their future production except for the last one. While there is little new in these results, they do reinforce much of today’s conventional wisdom.

As advisors consider their 2013 business plans, unless they have a natural niche that goes against conventional wisdom (and I will be the first to admit that some advisors do and can do well in these areas), they should target larger clients where there is the potential to build a deeper relationship by capturing more assets (and more family members if possible), and they should focus their sales and asset management on fee-based (or recurring) assets.

Food for thought to any advisor looking to the future.

(As a side note, one of the reasons I like to use PriceMetrix, and have confidence in their reports, is the breadth of their sample size. This study use aggregated retail brokerage data representing 6 million investors, 500 million transactions, 1.6 million fee-based accounts, 7 million transactional accounts and over $3.5 trillion in investment assets.)