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Managing Client Profitability, Pt. 2: A Case Study on Client Segmentation

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This is the second in a three-part series on client profitability. In Part One, we looked at the challenges of growth and dispelled three major myths about client segmentation. In Part Two below, we look at a case study of an advisory firm that learned about its true profitability and solved its client capacity issues. 

The Case Study: Trinity Wealth Advisors
In my last blog, I discussed an approach independent RIAs can take to manage their firms’ profitability and operational efficiency. It’s a strategic approach that firms can employ to grow their client base while providing the optimal level of client service. Getting to true client profitability involves understanding not only the revenue generated by each client, but also what it actually costs to serve that client. That knowledge helps you to make better decisions about what you want to deliver to which clients, how you execute your service model and how you price your services. 

Our relationship management team and I recently worked closely with Trinity Wealth Advisors of St. Louis through a process that enabled them to gain insight into the firm’s true profitability and also helped them solve their client capacity issues. 

Like many firms, Trinity and its client base have grown and evolved over time. With roots going back to 1981, today the firm is a 10-person office that oversees $250 million in client assets. The market volatility of the past three years caused a significant spike in Trinity’s business, and the three firm principals found they had more clients than they felt they could properly serve. 

Here was an opportunity to help Trinity improve some business practices that would allow them to address their capacity issues while continuing to deliver a high level of client serviceeven with the influx of new clients. 

We worked with Trinity over several months to help them design and implement a program based on the idea of segmenting clients into similar groupings to manage client profitability. The Schwab program, Managing Client Profitability, included educational resources in the form of a workshop and webinars attended by Trinity principals. 

Trinity’s Tailored, Customized Service
During the program, we employed a modeling tool Schwab created to help advisors develop groupings of clients to determine segment-level profitability. We encouraged the Trinity principals to look beyond assets under management and consider the client’s life stage, how much principal time is typically needed to serve that client, and whether the client is a good referral source as well. 

Using the model to “imagine” different ways of looking at their client base, Trinity ended up creating four distinct client groups: 

  1. Advanced wealth coaching
  2. Wealth coaching
  3. Emerging wealth and referral sources
  4. Friends and family 

After using the model to create different client segments, Trinity developed four different service packages, one for each client type. This segmenting change drove the firm to adjust some of its business practices to better serve clients within these new groupings.  

Previously, no matter the size or complexity of a client’s portfolio, Trinity would meet with clients an average of four times each year. Now, the number of meetings varies depending on the client’s situation. 

Until recently, Trinity’s client fees varied widely, too. Some paid a substantial annual fee and others paid the firm’s minimum.  It was a huge range, but the firm was committed to providing the same high level of service to everyone. Now, client fees are more closely aligned with the types of services required. 

Starting Off Right: Trinity’s First Meeting With a Client
Trinity’s first meeting with a new client is a “discovery experience.”  Prior to doing the client profitability work, no matter what the client’s situation, age or assets, Trinity promised the same array of services without the opportunity to tailor them to the individual’s needs. 

Now, Trinity conducts the discovery process in a way that allows them to determine the client’s most vital needs. Based on that discovery process, they offer a highly targeted service level that truly resonates with the client. Some receive more tax advice and face-to-face meetings while others need less personal attention, but require financial planning services. 

With the new approach to client service, Trinity can now determine the cost to serve each client as well as ensure that clients are getting the attention that they need.  In turn, they are making better decisions regarding resource allocation to specific clients, thus freeing up time to service key clients and attract new prospects.

Delivering Results That Matter
Trinity devoted time and resources to focus on managing the firm’s profitability and, in the end, was surprised at how easy it was to actually implement their new business practices. They found the modeling tool easy to work with and, because they have begun implementing their client profitability program little by little, there has been little impact on the firm’s operations. 

In my next post, I’ll talk more about steps you can take to implement a program to manage client profitability at your firm.

For informational purposes only.

The Schwab Advisor Services Client Profitability Modeling Tool (“Model”) is confidential and proprietary and includes the intellectual property of Schwab. It is inherently limited and intended for general informational purposes only. The outcomes simulated by the Model do not reflect, and are not guarantees of, actual or future results. Schwab makes no warranty of the accuracy or completeness of the Model or the simulated outcomes. Experiences reflected are not a guarantee of future performance or success and may not be representative of your experience.  (0911-5964) 

Charles Schwab & Co., Inc.(Schwab) is not affiliated with the content on this website and has no control over how it uses the information you share. Content posted on this website should not be considered as a recommendation, endorsement, or solicitation of any kind by Schwab.  Any opinions or statements by third parties on this page are their own and may not be representative of the experience of others or indicative of future performance or success. Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Schwab. Independent investment advisors are not owned, affiliated with or supervised by Schwab.


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