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 to 125 for any planner, regardless of the new tools and technologies we create in the future!
The inspiration for this 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.
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 in 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,” 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 to 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 to 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 to 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 to 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 to 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 to125 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 to125 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?
This blog was adapted from a blog post that appeared on Oct. 10, 2012 on the Nerd’s Eye View blog.
Michael Kitces, MSFS, MTAX, CFP®, CLU, ChFC
Partner and Director of Research
Pinnacle Advisory Group