Do You Understand Your Client Roster?

Highly satisfied clients are more likely to be retained and more likely to provide introductions. We don’t want to have to replace existing clients because of poor retention efforts. All we would do is remain in a flat business base at best. We’d work harder for no growth or possible negative growth. Retention programs must be robust. Robust means your clients see your client service model as “of significant value” to them. The cost of “robust” must be matched to the cost of providing that significant value and is partially based on the value of that client to the business.

You will need to invest close to 50% of your available time in an established book of business that is financially sound. Analysis requires knowing:

1. The number of clients by their value to the business. The analysis starts with segmenting your clients by their relative value to the business. That analysis is not only determined by assets and revenue but by several subjective factors as well.

2. What your service model looks like by client tier. It also requires you to determine who provides each element of your service model to that tier.

3. The time for servicing each of those client tiers. This essentially demands you establish a standard as a hypothesis for each tier.

Given these three data points, estimate what it takes to service your client base to “optimize” client retention. More detailed analysis can always be done, but we want to understand the order of magnitude and direction of the use of your time. It is an excellent starting point to understand how much of your time is required to retain your base of business and therefore how much time you may have for the other key aspects of your business, i.e., business development, investment management, business management, problem resolution, etc.

From known information, we can estimate what the right number of clients may be for you, given base assumptions. Naturally, for additional context, more detailed discussions would be required to fully understand the advisory team’s:

• Current client base;
• Longer-term goals for their desired client base;
• Service models;
• Operational model; and
• Roles and responsibilities by team members.

Do you have the right quality of clients?

During a detailed analysis, study the subjective data by tier and even client, along with their return on assets, and some of what you know about your clients. These data will point to the level of relationships you may have with clients.

The more you know about your clients, the more it indicates how well you have connected with them. That connection certainly includes financial data, but more importantly, one’s knowledge of the client and their family.

An initial assessment is the starting point. The assessment enables the advisor to ask:

• What else do I need to know about each client to optimize the relationship in terms of improving the services they provide?
• Point to specific shortfalls in your relationship so you can both address them;
• Leverage the relationship by enhancing additional services and/or products;
• Identify opportunities to seek introductions or other business development activities; and
• Assess issues that may have led to or may lead to a less satisfactory relationship.

A detailed assessment will point to each of these opportunities. An assessment will identify with whom to have additional conversations and further define the phrase “right quality.”

What are the areas where I need to improve my client relationships?

Based on what is found during the “right quality” phase, we can define areas where data consistently points to relationship shortfalls.

Many advisors do not know as much about their clients as they should to optimize those relationships. The analysis gives clues in this area. Optimize is a combination of long-term retention, cross sales, gathering assets away, and getting introductions. Relationships can also result in friendships and provide ideas to benefit you and your business.

This analysis will point to whether the relationships between clients and advisors is on track at a high level.

What clients think is inconsistent in many ways with what advisors assume they think. For example, Matt Oechsli did a study (undated) that reported:

• “28% of affluent clients perceive to have a personal relationship beyond the professional level, compared to 68% of advisors reporting a personal relationship with their affluent clients.”

• “74% of today’s affluent started their search because they didn’t think their current advisor was capable of handling their family’s wealth. On the flip side, only 9% began looking for a new advisor because they were unhappy with their current advisor.”

• “There is a strong probability that your clients aren’t aware of the totality of the services you offer – they still view you as you were when you first started working with them.”

• In a parallel research project with financial advisors, it was reported that “three-quarters of advisors claimed to provide financial planning services, while approximately 1/3 of our affluent respondents said they had an actual financial plan they were following.”

In an October 2020 survey by Evan Beach of Campbell Wealth Management and reported on Michael Kitces’ site, the author said, “The disparity between how investors and advisors rank the importance of investment returns is embarrassing” as another example of dissonance between clients and advisors.

An assessment will give you a starting point for the rest of the questions that need to be answered.

Can my clients be profitable?

We can establish a baseline to understand clients by revenue and their ROA and develop a range of likely profitability by groups of clients for further analysis.

Additional details and points of consideration include:

• What else do I need to know about each client to improve their profitability?
• Is our pricing model on target?
• Can we provide additional services and/or products?
• Is this client fee-based and/or should they be?
• Assess issues associated with this client’s profitability.
• If a client is unprofitable or likely unprofitable, what actions can I take? Can we increase their value to the business, reduce the services you provide, have a junior advisor be the RM, transfer the client, generally my last choice unless the client is difficult to work with along with being unprofitable.?

How much time should I be spending with my clients?

Our hypothetical advisor may not be speaking with her clients enough. This is a function of profitability, service model, and desired retention which can vary by tier and client. An assessment will provide a starting point for deeper analysis and point to outliers to consider which clients are outside your desired range of profitability. Clients can also be over profitable, which can represent a potential risk in terms of retention.

You must have a written client service model and review it regularly with your clients and proactively seek feedback.

How should I approach my clients for introductions?

This is one of the hidden treasures in the information. A “proper” in-depth analysis of what I call your “client wisdom” will lead to business development opportunities including how to approach specific clients for introductions.

Assuming you receive positive feedback, you can move into the introduction process using the principle of “aided recall.” Aided recall means prompting your clients by inducing an association of ideas (or people) to help them recall other individuals who are the same or like them. It narrows the question, so people’s names and faces more easily come to mind.

It has been estimated that 55% of clients are likely to refer their advisor to others, but 4% of clients come to advisors from referrals.”

An assessment will point to clients and specific ways to increase the advisor’s ability to receive introductions.

Are my clients remunerating me fairly?

This is also a function of profitability, service model, and desired retention which can vary by tier and client. The base for an assessment uses industry benchmarks in a comparative analysis of your book and the variations of tiers and clients within your book.

An assessment provides initial indications of outliers for you to consider individual cases needing action to achieve “fairness” in how a client is remunerating you. “Fairly” is the operative word and is a function of the numerical analysis, significance of any unprofitability, and subjective factors.

The point of an assessment is to identify large deviations and starting points for deeper analysis to consider which clients are outside your desired range of “fairness.”

Next steps

An assessment will require hours of analysis and reporting. It will also require several hours to record basic information.

David Leo is founder of Street Smart Research Group LLC. He is an author, speaker, coach, consultant, and trainer to financial professionals. David is an experienced business manager who works solely with financial advisors, planners and firms who want to organize, structure and grow their businesses by attracting, servicing, and retaining affluent clients.

If you have questions or would like assistance in personalizing and implementing approaches from The Financial Advisor’s Success Manual, schedule a free 45 Minute Strategy Session at https://calendly.com/davidileo or contact me at [email protected] or visit my website at www.CoachDavidLeo.com

His book is available at Amazon at https://www.amazon.com/Financial-Advisors-Success-Manual-Structure/dp/0814439136.

¹https://www.outboundengine.com/blog/customer-retention-marketing-vs-customer-acquisition-marketing/#:~:text=Acquiring%20a%20new%20customer%20can,customer%20is%205%2D20%25.

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