From the June 2008 issue of Wealth Manager Web • Subscribe!

Spring Cleaning

If the first word that comes to mind when you think of spring is cleaning, we're not on the same wave length. Personally, I live by the mantra that life is too short to clean your own house, so--despite the headline--this first column on knowing your clients won't contain any 'Hints from Heloise!'" What we will do is suggest steps you can take now that should help to polish your wealth management practice to make it shine as brightly as it can.

A few weeks ago, however, I did have a moment of sheer madness and actually contemplated doing my own spring cleaning. I went so far as to scan the Internet for some spring-cleaning best practices. The overwhelming advice was this: "Declutter" first--before you clean--so you can see where improvement is actually needed. While I'm not a fan of getting business advice from the Web, it occurred to me that that suggestion is exactly what wealth managers need to do: Clean out the clutter first so you can see your practice for what it really is, what it needs to be, and what you need to do to get there.

Should It Stay or Should It Go?

Over time we accumulate many items in our homes that no longer fit our current lifestyle and needs. We all have limited space, so at some point (usually when a shelf comes crashing down on your foot), a decision needs to be made: Should it stay or should it go? Is this item doing anything to enhance my life experience or is it taking up space that can be used for something that will truly bring me value?

You should apply the same question to your wealth management practice. Every practice has limitations on time, energy and resources, and leveraging these most efficiently is paramount if you want to succeed. So ask yourself, "Is this client a good use of my resources or is he or she preventing me from focusing on clients and activities that enrich my business?"

Over time, firms often change their structure, focus and expertise. Accordingly, evaluating your client list is a necessary annual exercise. Use this season to unclutter your practice of clients who no longer add value to your business.

Studies indicate that on average, for an advisor serving the mid-tier millionaire, the optimum number of clients is about 100. How does your client list compare? Are you over or under?

If you are serving more than 100 clients, you are at capacity. Are you maximizing your success? Is there room for improving your efficiency? If you are not at capacity from a numerical client standpoint, but you are from the standpoint of time, it stands to reason that your practice may be chock-full of inefficient clients.

There are four types of clients that usually prevent a wealth manager from maximizing success:

1.Those that no longer fit your defined target market

2.Those that no longer fit your definition of "ideal client"

3.Those that are below your acceptable profitability percentage

4. Those that you just don't enjoy working with

Begin by mining your list for the types referenced above. This will help you develop what I like to call your "Clutter Client List" (CCL) with your clients' names listed vertically and these four client types listed horizontally. You will find that many clients fall into multiple categories. These should be the first clients to go!

Your target market often focuses on the demographic group you're most passionate about serving which could be by age, source of wealth, marital status or revenue generation. However, your ideal client is usually a subset of your target market.

Determining Your Ideal Client

Many wealth managers tell me they know who their ideal client is. But after careful probing, I tend to find their definitions vague. One relatively easy way to solve this problem is to develop a written profile--what I call an Ideal Client Profile (ICP).

First, determine the set of criteria or characteristics that make up your perfect client. A starting point for this exercise is to examine your favorite five to 10 clients and determine the common attributes that energize and inspire you. For example, an advisor I know uses "interesting person" as one of the key attributes she looks for in clients. Her theory is that if we have to work, we might as well work with people who stimulate our intellectual curiosity. Your ICP will change over time, so reviewing this annually basis and make changes as appropriate is a must-doing.

Profitability is the essence of efficiency. Think like a CPA or a lawyer: You should be compensated at your going rate for every hour that it takes to serve the client. If you were a CPA who bills at $500 an hour, would you work with a client who will only pay you $250? Of course not, but that's what many wealth managers do. For each client, divide the revenue earned by the estimated number of annual work hours attributable to that specific client. This will give you the profitability percentage. Those who fall below your average or acceptable profitability are candidates for your Clutter Client List.

Before placing them on that list, however, apply some subjective filters. Consider, for example, forms of compensation other than fees you may receive from them--such as entry to a niche marketplace, access to spheres of influence, or referrals. Determine if that benefit outweighs the lower profitability. If so, remove that client from the CCL. Special ties--like the housekeeper of your biggest client--are another subjective filter that you should consider.

Last are those clients that you just do not enjoy working with. Usually these clients come in three forms: complainers, flakers and challengers. Complainers never have anything good to say--parking is bad at your office, your assistant is rude, your fees are too high, and so forth. Every time they walk out of your office you wonder why they stay with you. Flakers mean well, but they just can't help themselves--they are chronically late, miss appointments and don't follow through with their assigned tasks. You end up spending more time waiting for them or listening to them apologize than actually providing a service of value. The third group is the Challengers, who in my opinion, are (pardon the pun) the most challenging. Challengers are active watchers and readers of financial media. They constantly challenge your advice using ill-formed opinions. When they leave your office, you feel burned out.

Building your Clutter Client List can be an eye-opening exercise for many wealth managers, because often the CCL is longer than the list of keeper clients. Don't despair; you will not be firing all these clients. Instead:

1.Identify new sources of revenue (i.e. gather more assets)

2.Increase fees to match profitability (or annoyance) need

3.Refer out

Prospering in Difficult Times

I know that in these volatile times, it may seem counterintuitive to let revenue walk out the door voluntarily, but in hard times it is actually that much more important. Try not to focus on the lost revenue, but rather on the resulting reduction in stress and the improved leverageability of your resources.

The key to the continued success of your practice is to know the clients that matter the most to your business and make sure they are happy. I can't stress enough the importance of this approach. You must always strive to avoid one of the biggest mistakes businesses make when it comes to their clients: Paying too little attention to the best clients, or working too hard at trying to keep the wrong ones.

Susan L. Hirshman, CFP, CPA, CFA, CLU, a former managing director for JPMorgan Asset Management, operates a wealth management consulting business in New York. She can be reached at

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