There comes a time when advisors decide to take their practices to the next level. While their client base has grown and includes a number of high-net-worth clients, and they’re ready to move up to wealth management, something’s holding them back, and they never seem to find the time to provide superior value to the firm’s top clients.
Many advisors find themselves run ragged by clients with small portfolios and large needs. Client phone calls, e-mails, and drop-in visits eat away at their day, leaving just morsels of time to spend on clients who already are–or could become–more profitable. Driven by a commitment to high levels of service, advisors find that it’s simply impossible to meet everyone’s needs.
It’s time these advisors take the plunge. By actually reducing the number of clients, they’ll gain precious time they can reinvest in their top clients, an investment of time that will aid retention and foster valuable references. Like the first time you jump into the deep end of the pool as a new swimmer, trimming your client list can be a terrifying proposition. But like that first watery plunge, the exhilaration and satisfaction you feel afterward will keep you coming back.
“At the time, I was really uncomfortable,” said an advisor from Vancouver, British Columbia, with 20 years’ experience. Three years ago, this advisor (who wishes to remain anonymous for compliance reasons) decided to prune his client base in order to focus on wealthier clients. He recalls driving home on a dreary afternoon after mailing 130 clients a letter stating that he would no longer be their advisor and thinking, “This is a huge mistake! What have I done?”
Today, he says it was the best move he ever made.
This advisor, like hundreds of others I’ve counseled on moving up to wealth management, faced a dilemma. In 2005 he had 450 clients, his business was growing, and he and his team were busier then they could imagine. They all found themselves working longer and longer hours, yet still never catching up.
Activity is not a substitute for genuine growth. What’s more, as this advisor found, sometimes in order to serve the mass of clients, you end up short-changing wealthy clients who are paying full fare.
“When we made the change, it opened our eyes to how much more we could do–how we could blow away our wealthier clients with a higher level of service,” the advisor recalls. Now, he reports that he’s not only working as hard or as many hours, but his team is having more fun. Last year was the firm’s best ever for both assets gathered and total revenue. By the end of May 2008, the team had already surpassed its 2007 assets-gathered record.
Three Steps to Disengagement
Out of duty to all your clients, you must first realize that all of them need to pay a level of fees commensurate with the service they require. It’s not a good sign of business health if revenue from your best clients is subsidizing service to others.
If clients are not inclined to pay the fees you require for the service you provide, then consider disengagement. I define disengagement as completely cutting your tie to a client and transitioning them to another advisor with a service model better suited to their needs. The path to disengagement typically involves three steps: segmentation, transition, and disconnection.
Step 1: Segment Your Book
I first ask advisors to work with their team to segment their book based on recurring annual revenue and the effort spent serving the client. Some advisors–like Lori Watt in Waukesha, Wisconsin–have developed an even more complex scoring system. Watt, a Raymond James-affiliated advisor with Investors Advisory Group, uses five criteria: recurring annual income, time spent, referral record, potential to help the firm (networking possibilities, referrals, portfolio growth, etc.), and lastly, likeability. She’s been in the business since 1980, founding her own firm in 1985. “If they aren’t nice people, it almost doesn’t matter how much money they bring,” she says.
Advisors should use a common sense approach to segmentation and to help decide which clients to let go. If a low-end client has strategic value, take that into consideration. That client may be connected closely to a target client, acquiring assets in the near future, or be a referral source to prospective clients.
Whatever criteria you choose, eventually you’ll end up with a tiered list. I break them down into quartiles (see chart on page 107), with “D” clients representing those who are non-profitable with small account balances, and who have little or no ability to move up over time.