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:
- Advanced wealth coaching
- Wealth coaching
- Emerging wealth and referral sources
- 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.