Executive Summary
As financial planning firms grow more efficient, especially with the use of technology, it becomes possible for planners to manage an increasingly large number of clients. The only limitation, it would seem, is the time it takes to service them. However, research in psychology and anthropology suggests that there may be another limit to the maximum number of clients - the physiological limit of our brain's neocortex that constrains the number of social relationships that can be actively maintained. This threshold - called "Dunbar's number" - is estimated to be about 150 people on average, and corresponds not just to the average size of many ancient tribes and villages, but also the military unit size of the Roman army, and even the average number of Facebook friends or engaged Twitter followers! The implication of the research is that even as firms continue to become more efficient, there's still a physiological brain-based limit to how many clients we'll ever be able to manage, which allowing for some personal relationships as well may never be much higher than 75-125 for any planner regardless of the new tools and technologies we create in the future!
The inspiration for today's blog post was some recent reading I was doing about "Dunbar's number" - named after British anthropologist Robin Dunbar and based on his research, which suggests that there may be a physiological limit to the number of people with whom someone can maintain personal relationships - an issue that has direct pertinence given the depth of relationships we try to maintain with clients as financial planners!
Dunbar's Number And Relationship Capacity
The origins of the Dunbar number was an observation that because social groups require ongoing social contact to be maintained, that the maximize size of a social group may be limited by the size (literally, the volume) of the neocortex, the part of the brain most responsible for our social interactions. Accordingly, Dunbar looked at a range of 38 different non-human primates, the average size of the neocortex for that species, and the average group size, and extrapolated an estimate of the maximum group size for humans. That estimate, as published in 1992 in the Journal of Human Evolution, was approximately 150 people.
Having identified an estimate for the maximum size of human social groups, Dunbar then searched through history to try to identify how humans have self-organized through history, to see if the 150 estimate could be validated, and indeed it was; approximately 150 people was consistently observed from the typical size of early tribal villages, to the basic unit size of professional Roman armies (and still approximates the size of a Company unit is most modern militaries).
Simply put, even when humans needed to stick together for safety and survival, we can typically only handle group sizes up to about 150. Beyond that, and our brains just can't keep track of everyone, and we tend to split off and form new groups.
Technology And Dunbar's Number
With today's technology, and the incredible communications tools becoming available, one might theorize that Dunbar's number will begin to break down. Surely with everything from email to phones to texting to social media, we can handle a greater number of relationships? After all, just look at those who have thousands of Twitter followers or Facebook friends!
In reality, though, recent research is showing that even in a world enhanced by technology, our brains still limit the number of relationships we can maintain, even if we might communicate and interact using new mediums to maintain those relationships. For instance, some of Dunbar's own research into Facebook has found that even when we have hundreds or thousands of "friends" that in reality most are "mere voyeurs looking into your daily life" - all but a core of about 150 who you interact with and maintain true relationships with. In fact, across all of Facebook, Dunbar would suggest it's no coincidence that the average user has about 120-130 friends, as that result itself fits Dunbar's number (almost precisely if you assume a dozen or two friends and family members who don't have Facebook accounts but are part of your real world social network). Similarly, a recent research article on Twitter also found that while many people have vast Twitter followings, most people still only regularly engage with a maximum of about 100-200 stable relationships.
Ultimately, even with technology enhancing the communication, the physiological constraints of our brains limit how many social relationships we can truly maintain. Beyond that, we may have acquaintances, "friends", and followers, but the inner circle of real relationships remains limited.
Dunbar's Number In Financial Planning
In financial planning, it appears that Dunbar's number continues to hold as well. Anecdotally, I have routinely found that most financial planners, even with very efficient practices, seem to "cap out" at a maximum number of clients around 100-125; beyond that point (if not before), they just can't seem to maintain the client relationships. In reality, even for planners with 100+ clients, it often turns out that only 50-75 really have active, ongoing relationships; this makes sense, given that most people have their own network of relationships outside of their financial planning business (not to mention co-workers within the business), which take up some of their 150 capacity.
Accordingly, this suggests that even as financial planning businesses become more efficient, and time becomes more leveraged with technology, it may be unrealistic to expect that planners will ever be able to maintain more than about 75-125 real client relationships (allowing for some room for other personal relationships as well!). As some of the research in social media and Dunbar's number is beginning to show, the technology may make it easier for us to maintain the relationships at a distance and with less in-person interaction than we have historically as a species... but it's not changing how many of those relationships we can maintain.
In turn, this suggests that if/when/as financial planners become efficient enough, perhaps with the assistance of technology, to maintain a "full" client base up to 75-125 clients and still have time left over, that the time would be better spent on other professional tasks (continuing education, volunteer activity, internal office projects, etc.), besides just trying to add more clients. This also suggests that the 75-125 client level is probably an appropriate point where a financial planner should take on a partner or planning associate to begin to distribute the client load and transition relationships.
In practice, the exact capacity of an individual planner will still vary. First of all, as noted above, the limit seems to apply to the total number of relationships we can maintain - not just financial planning clients - and different planners will have their own balance between personal and professional relationships and the capacity of each. In addition, the 150 estimate of Dunbar's number itself seems to hold up pretty well in the aggregate, but even as a physiological constraint not every person will have the exact same limits as our individual biology varies.
Nonetheless, it seems that we may need to pay more attention than we do to the fact that, even as technology helps us get more efficient, there appear to be physiological limits to the sheer number of social relationships that anyone can maintain. To ignore that threshold and try to grow a client base beyond that point then becomes a virtual guarantee that not all clients are going to get the same depth of client relationship.
So what do you think? Do you see the Dunbar number reflected in your own life and relationships? Do you think the number is too low, or too high, or just about right? Have you seen yourself or other planners begin to struggle with the number of client relationships at a certain point? Would this impact how you operate and structure your own business?
Excellent article Michael. I’ve certainly witnessed Dunbar’s Law in my own life and business. From a Financial Planning perspective, I think nearer 100 is the absolute maximum number of clients to whom we can give an intimate service.
I therefore believe we need less clients who pay us more money, in return for an enhanced service that genuinely focuses on giving them what THEY want, not what the Financial Services ‘Industry’ wants.
Happy clients = Happy Planner
Intriguing post, I like it.
My question is whether, in the future, a financial planner will need to “have a relationship” in the Dunbar sense with each of his or her clients?
Say you have copious notes in google or whatever CRM you use on everything you talked about in previous meetings, kids, wife, etc as well as all the financial considerations. Even if you did not “feel” a relationship, could you as a planner, and with practice, just kind of fake it? As long as you are part of the clients 150, is that really what matters?
Alex,
Realistically, I think there are a HUGE number of people out there – probably the majority of Americans, in fact – who don’t really need an “in-depth” personal financial planning relationship. They need basic financial planning advice and guidance on a more limited basis. In those scenarios, I don’t see the Dunbar number as a real practitioner limit, as the planner doesn’t NEED to maintain that same depth of personal relationship.
For a client who does expect a real and substantive relationship, though, I’m not certain you could ‘fake it’ by just having good notes and details. As humans, we’re usually quite astute in detecting when someone does or does not have a serious relationship/connection with us.
But again, how many clients really need the latter (a deep planning relationship), versus the former (a more ‘casual’ connection that is simply focused on delivery of quality advice), is an open discussion in my opinion.
For instance, no one questions the value and professionalism of doctors, but clearly I’m not part of my doctor’s 150 when he sees 1,500+ patients every year (nor, frankly, is he part of my 150 either!).
– Michael
Great blog article Michael. It seems to me those clients who do need a deep planning relationship should be certain they are working with an advisor who maintains, at most, 150 client relationships.
My gosh Michael,
There you go again questioning the “experts” at huge financial firms who believe you can handle hundreds of financial planning clients effectively. I can handle roughly 200 families; as long as I’m in depth about their lives and those of the families. This is when a planner must leverage technology. To Alex’s point, modular plans are effective. As one client told me “it’s best to eat the chicken a piece at a time as opposed to all at once.” I think you make incredible contributions to our industry by questioning everything.
I like that distinction. Maybe we can also make a distinction between professionals that use a deep Dunbar-style relationship as a means of understanding client needs and providing better service vs. those that use a deep personal relationship as a means of locking-in clients through a personal connection while providing comparatively poor service. Certainly the full-service brokerage industry, for example, seems to have relied a lot on personal connections in a way that did not always serve the best interests of the client.
I would hope that technology enables the first group to continue to serve the same number of clients, but with a higher level of service, and that it totally disrupts the second…
Fun stuff, Michael, thanks. I’ve had 150 clients, and now I have 25. I prefer the 25 and think they would also agree. I just never knew there was any science behind that!
Ross
Michael,
What you say makes a lot of sense to me. It seems that advisors “hit the wall” when they approach 100+ clients. They can’t figure out how to manage the time, manage the clients, manage the business, manage the staff and still have time to acquire more assets. The cerebral cortex can only take so much.
Michael, this post reminds me of the discussion in Malcom Gladwell’s The Tipping Point (where Dunbar is cited) and the Hutterite colony outside of Spokane Washington. The Hutterites are groups of people living in an agricultural setting who base the size of their “colonies” on the rule of 150. If a group becomes larger than 150, the close knit relationships suffer so they split up the group into smaller numbers.
I personally believe the best number of clients for advisors is between 80 and 100 (if you have properly planned your business foundation). When you get beyond that number advisors are less likely to have the time to adequately service clients and maintain good relationships. It’s also a quality of life issue. A satisfying life is less complicated with fewer clients.
Excellent article Michael. I think the physician analogy is applicable; as is the dispensation of any advice which is “transactional” as is the case with some financial, legal, or tax situations for example. Financial Planning however does imply a much more engaged relationship with the client on many levels both personal and financial, and thus does indeed occupy more relationship brain space. And here I was thinking it was because I was getting old.
Michael,
Interesting question, i submit, if your firm is actually designing financial plans and according to research from Genworth Financial Wealth Management in concert with Malcolm Galdwell, a solo firm can handle 75 clients and still maintain efficiency and profitability. I have 55 clients and the goal is 70-75.
Michael, Agree wholeheartedly with the maximum number of people in a planner’s client base and with the idea that you cannot fake relationships. Also agree that not everyone needs a close personal relationship with their financial planner.
Question about the Dunbar number. As I looked at it a year or so ago for the social media implications, it seemed to me that Dunbar’s groups were fully integrated groups. His objective was for everyone in the group to know everyone else in the group. When I apply this to my social media activities, I do not care if everyone I am connected with knows everyone else I am connected with. I can learn from someone who I do not know intimately and I can converse with someone I do not know intimately. Did you see this same definition of the connection?
John
John,
What some of the recent Twitter research tying to Dunbar’s number has found is that even when we follow hundreds or thousands of people on Twitter, we still only genuinely engage with about 100-200 people – i.e., still fitting Dunbar’s number.
Just as we may have very casual acquaintances with hundreds of people in the real world, so too may we interact lightly with many on Twitter. But when it comes down to more substantive and meaningful relationships, the Dunbar limit appears to be just as applicable in the social media world as the live in-person world.
– Michael
Michael, there is validity to those numbers but there are exceptions. An early CFP friend because of health issues,limited himself to 25 extremely high net worth clients and had a fabulously successful practice for that era almost 40 years ago. We on the other hand, started with modest clients and grew progressively for 35 years both their net worth and our general numbers at between 300-400 clients.We work harder than most planners with appointments 6 days a week including most days like the last week which included New Year’s Eve and XMAS Eve.With technology and a 12 member firm with soon to be 4 CFP’s it works.My Next Gen son whom you know, has no desire to imitate my life style commitment which was forged out of the perceived necessity of trial and error and survival of the fittest.Our habits have been conditioned by those experiences are no longer necessary but maintained by pure default. Dave Demming
The latest issue of BusinessWeek includes a great article on Dunbar’s Number – http://www.businessweek.com/articles/2013-01-10/the-dunbar-number-from-the-guru-of-social-networks
If a financial advisor’s goal is to have a profitable practice and still have time to lead a life, Dunbar’s numbers make a lot of sense. Better to have 75-125 clients that pay well, then to have 400 who don’t. I know advisors who have over 400 clients, are working like crazy and worry about paying the bills.
Mike Michalowitz’s book, The Pumpkin Plan, writes extensively about the desirability of having a few well playing ideal clients.
One way I see my clients having well over 125 clients and being successful is they keep only low paying clients who do not demand any time or resources. Otherwise, they have to go. Psychologically it’s hard to let a client go. That’s where I come in to help my clients.
Stunning. I began to seriously struggle at 75. I brought on a partner at that point and after a few months we were able to resume growth. My partner and I are quite different in style and approach and we found that some relationship transfers were natural. Others were difficult and our productivity suffered as we jointly worked toward transition. After two years of frustration and hand wringing, we hit our stride and increased clients to 145, where we promptly hit a wall. We recruited and brought on another planner at that point who brought with her 15 existing relationships. After analyzing our initial transition successes and failures we opted for a revised approach where we targeted our marketing to clientele that we felt meshed more readily with her unique style. The process is ongoing and slow, and although I feel our clients are being served well, I have to admit that our practice goals are suffering. One interesting by-product that is not covered by Dunbar is the difference between the stress and considerations of maintaining a relationship as opposed to beginning a new one. New relationships are about discovery and uncovering tangible benefits. A new client is by their very nature evaluating the merits of entering into the new relationship. As an adviser, I believe there is a special boost that you get from helping someone new that is absent from the process of maintaining existing ones. Personally, I worked hard to build the business but the process was mostly invigorating. The work to maintain it is just as hard but the invigoration component is largely absent. From our prospective clients we get a common refrain as to why they are seeking a change. The service isn’t what it used to be or I don’t think my adviser has time for me, or simply that calls and emails go unreturned. When you simplify it down, I’ll bet we are getting new prospects almost solely from planners that have exceeded their Dunbar limit. As a young adviser the conventional wisdom seems to be get as many clients as you can and worry about the practice aspects of it later. I think young advisers would be wise to consider Dunbar’s number at the outset of their careers and take on new relationships with great care and understanding that the supply of clients and centers of influence is not limited by our marketing ability or financial prowess but rather by our neocortex..
James,
Interesting, thanks for sharing.
Indeed, sounds like you were hitting the Dunbar limits at about 75 clients/advisor. So you hit it as a solo, and then you and your partner hit it again as a pair (at 145 for the two of you).
Certainly, there are some advisors who seem to get to a slightly higher number before hitting a wall, but I find this amazingly consistent. Virtually all advisors I find with much larger books of clients (the 200+, 300+, etc. kinds of advisors) still only have about 75-125 at most who are truly “active” clients and the rest are loose relationships, either content to be that way, or as you note who go out and find another advisor who isn’t at their Dunbar limit!
– Michael
Do we consider two spouses as a single relationship?