The key to client profitability for RIAs is two-fold. On the one hand, you need to be acutely aware of you firm’s goals, including the direction that you’re headed, who you hire and why, and your plans for succession. On the other hand, you have to know your clients who they are, what their goals are and their expectations of your firm.
All of those factors aside, nobody knows better than an advisor that the best-laid plans don’t always work out the way we intended. When it comes to building a mutually beneficial relationship with clients, sometimes the stars simply don’t align—or they need adjusting to fit both parties.
Assuming that you’ve already got a hold of your firm’s goals and you understand your client database, the next step to measuring profitability and creating capacity for new business is to use technology to do what it was intended to do: to make and save you money.
More Than Just the Facts
If your technology is serving you justly (a CRM system should capture client data for easy reporting and management), you can quickly give your practice a temperature check on time spent per client in a 12-month period compared to revenue.
Begin by asking all of your advisors to submit a list of clients who they consider to be high demand, to the point that it is affecting their services to other clients. Compile that list and then, using your CRM system, report the following data for the past 12 months:
- Overall time spent per client
- Revenue per hour
- Overhead per hour
Once all of the data is gathered, do your homework. Meet with advisors and validate the numbers. This is a team effort; ask advisors for their recommendations on what to do with these clients that could result in a better relationship. The goal is to make the most of an advisor’s time so that they can focus on building new business and in cultivating your existing clients with business potential.
The 4-Step Plan to Client Profitability
Keep in mind three things: 1) your firm’s current efficiency level (and where you’d like it to be); 2) your client service capacity (are the right clients getting enough of your attention?); 3) the potential for new business.
Implement this plan with a timeline of one quarter—whether or not you are scheduled to meet with a client during that time. The sooner you get started, the sooner your team can focus on helping you build a more efficient and profitable firm. The follow these four steps for each client on your list:
- Re-assess and adjust your service. The first step is to measure time spent on a client with their profitability to your firm and to adjust your services accordingly. Are some clients not getting enough of an advisor’s time? Are others absorbing too much time to the detriment of other clients? Your advisors should strive to be more practical and efficient with their hours.
- Put clients on notice. If your relationship with a client isn't working well with your service model, be honest with them. Based on the time they require, you may need to raise fees or simply notify them that you need to scale back your interaction with them.
- Look internally at your processes. When your data reflects a completely reasonable, profitable client, it may be your processes that need work. How are tasks assigned? What resources do your advisors have for getting the information they need to answer client inquiries? Are your internal processes and procedures consistent across the firm?
- Change up the relationship. No one likes severing a relationship with a client, even if it may ultimately be the right choice for your firm. Before you take that step, try assigning the client to a more junior advisor if one is available. If you’ve exhausted all of your options, it may be time to have a difficult conversation with your client.
These four steps provide a road map to help ensure you’re choosing the right clients for your firm. As an advisor, being intentional and selective about who you serve is not just your prerogative, it’s your responsibility; it directly affects the success of your firm.