Impact of Client Composition on Practice Value

Many Ameriprise advisors know not all clients are created equal. However, few really take the time to understand the composition of their client list and the impact client composition has on the value of your Ameriprise practice.

Knowing this can make a significant difference in the financial health of your practice, as well as the ultimate value you can garner from your practice when you decide to sell.

When we evaluate client composition, we look at it from two main aspects: AUM and age.


Client Composition - AUM

From the AUM perspective, we break down clients into three categories:

  • Basic Client: A client with AUM under $100,000
  • High Value Client: Client with AUM between $100,000 - $500,000
  • Affluent Client: Client with AUM over $500,000

Generally speaking, it takes the same amount of resources to service a basic client as it does an affluent client. However, the Affluent client accounts for a greater percentage of GDC. Below is an example of a practice we valued. As you can see, although basic clients are the largest client group, they account for the smallest percentage of GDC.


Item Basic Client
(Below $100K AUM)
High Value Client
($100K to $500K AUM)
Affluent Client
($500K+ AUM)
# of Clients 44% 38% 18%
% of Advisor's GDC 7% 32% 62%
Average Age 53 63 65
Average AUM $34,739 $247,445 $1,248,931
Average GDC $401 $2,217 $8,654

This tends to be true of most practices. Which is why we always recommend actively increasing the percentage of high value and affluent clients, while reducing or eliminating basic clients. However, basic clients can bring value to the table, especially if they are part of a generational planning strategy. Which brings us to the second factor: average client age.

Client Composition - Age

As with any asset, a client’s value declines as they age. The significant decline in value occurs around age 70, when clients have retired and begun drawing down on assets, or sadly, have passed on. As they draw down assets or transfer them to heirs, their AUM declines, and thus the earnings to the firm decline. This is why generational planning is critical to preserving practice value. Engaging with spouses and heirs early on allows you to build relationships and ensure continuity of client assets under your firm’s management.

So, whether you are looking to secure financing for acquisitions, or are planning your own retirement, its critical to understand the composition of your client base and how it impacts the value of your practice. Make it a habit to evaluate your client roster annually, and actively campaign to recruit client family members. Doing so will ensure the health and sustainability of your practice value.

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