Alastair Conway, head of strategic propositions at Sesame, explains the importance of systematically reviewing your client base
The last 17 years have seen financial advisers faced with a wealth of obstacles to overcome. While many of these changes have not been easy to deal with, the resilient nature of advisers has enabled them to adapt their businesses.
However, these changes have - in the main - only required a tactical response rather than a fundamental shift in the way that advisers deal with their clients. The combination of depolarisation and the continued pressure on margins has changed all that. There is now an excellent opportunity for advisers to take a long, hard look at their business, especially their client bank.
In the new regulatory environment advisers are likely to be faced with the increasing dilemma that some clients are simply not profitable. Indeed, they could potentially be a real burden to growing their business in the future. This will be a common problem for many and now could be a good time for advisers to do the necessary work in order to review and possibly segment their client base. For many advisers this represents a real challenge, as their reputation has been built on being a local champion of advice to all clients. However, the old rule that you get 80% of your profits from 20% of your clients is also true of most IFA businesses.
Do your research
So, how do you go about segmenting your client bank? First you will need to find out what it is that your clients want and value most. This will be crucial in deciding your service proposition and the ongoing marketing activity you need to provide. Some clients will be more suited to a transaction-based service and others will be prepared to pay for a holistic service. The key principle in the future will be that if a client wants an ongoing service, whatever that service may be, they will have to pay for it.
The next step is to distinguish between clients who are currently profitable to serve and those who are not. Of course clients who fall into the unprofitable category are still welcome, but this is increasingly likely to be when they have a specific transaction to carry out, such as a re-mortgage, or if they can be encouraged to adopt a more profitable relationship with you, such as paying a retainer in exchange for an ongoing service.
This segmentation work will undoubtedly take up valuable time but the outcome could be very healthy for your business in the long term. Properly segmenting your client base could be an important step in making your business more efficient. Some of you will have already adopted a more targeted approach to servicing clients, while for others the impact of depolarisation may naturally lead you to undertake this work. The important point is that once advisers have accepted this step-change in the way businesses of the future are likely to operate, it will help your clients to appreciate the cost of advice and the valuable service you provide.
So, how are financial advisers responding to the challenge of reviewing their client base? With sweeping changes just around the corner, David Kirkpatrick from David Kirkpatrick Associates in Belfast is just one adviser who believes that now is the time to take a long hard look at your business. He says: "It is only recently that I have taken a step back and thought about this issue. I quickly came to the conclusion when reviewing my client base that it is simply not fair for the minority to subsidise the majority. I am currently undertaking market research to ascertain exactly what it is that my clients value and need. This has already highlighted two distinct groups, those who want a transactional-based service and those who are more suited to an on-going relationship and want a full advice service."
Demand for business training
Back in 2003, feedback from advisers highlighted a thirst for general business skills training to help with running their businesses in the depolarised world. In response to this, Sesame developed Sesame Learning and embarked on a series of initiatives to help advisers acquire the technical and commercial skills necessary to increase their efficiency and profitability. Popular areas have included advice on marketing, selling skills, technology, client management and segmentation, along with more advice-related issues such as moving to a fee-based business model and the advice process.
Client management and segmentation has been a running theme over the last year at the Sesame Learning Regional Meetings and experts from across the industry have been helping advisers to understand the significant productivity improvements businesses gain from adopting a proper segmentation and client bank management strategy. After all it is easier to deliver a valuable service to 100 people rather than 500; hence the need to identify your top clients.
Take the time to make sure you understand what your clients really value and need, as in the long-term this may help secure the future prosperity of your business.
Joined as head of strategy, multi asset, in June
Group income protection
Nine in 10 do not have income protection
Set to become part of Single Financial Guidance Body