Investor Facts: What Is An Account Minimum?

An account minimum is the least amount of money or assets an investor must deposit in order to work with an advisory firm.

Investment firms and mutual funds specify an account minimum for new clients or to keep an account in good standing. Typically this amount is at least $500. Brokerage firms might set the number lower while mutual funds often go higher.

Many financial advisors and firms establish a minimum account value to open or maintain a client relationship. The bigger question is, “Why do firms institute an account minimum?”

There are a number of reasons, but here are just a few:

First, there are costs advisory firms incur just to stay in business. These expenses includes trading fees, technology for account and performance reporting, statements, postage and other business operating costs.

Firms often specify an account minimum in order to set a point over which they consider a client to be profitable. The revenue earned from the client not only takes care of these expenses but provides positive net cash flow for the firm.

Some advisory firms aren’t interested in growing their client base. They might be satisfied with their current revenue. They might not want to take on new staff and would rather remain a boutique firm, with one or two employees.

In many cases, too, an account minimum is implemented as a way to allow only those clients in the door who will make it worth the time and additional work required to serve them.

Rule of thumb

Other firms do want to grow but must be careful how they grow. As a rule of thumb, business coaches tell advisory firms to increase their account minimum over time.

The firm would do this to ensure that it takes on new clients who have more assets and thus provide more income instead of taking on more clients with fewer assets. That leads to more work but the same or less revenue, an unsustainable proposition.

Though perhaps counterintuitive, in many cases smaller clients require more work than larger ones.

This is due to the additional effort needed to secure life insurance, budgeting help and oversight of multiple accounts with monthly contributions, services that larger, more established clients might not require.

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