In the current climate, post Retail Distribution Review, more press space is being given over to discussion on issues like client segmentation and client proposition.
I see this as a positive step and quality work in this area can eliminate many problems for IFAs as they grow and develop.
However, in my work with larger IFA firms one of the issues that seems to arise is that many of their ‘clients’ have arrived on their database via the acquisition of another IFA firm. If the acquiring firm has also taken on staff from the acquired firm as part of the deal, there may be a chance that the clients are known. However, while some staff may come across the original advisers often do not; meaning client relationship continuity is lost.
I appreciate that it is often difficult to structure an acquisition with the advisers as part of the package, as the bottom line is the purchase of the client bank with the accompanying recurrent income stream. The problem comes though when the new company wishes to have a meaningful and profitable relationship with these ‘clients’.
Without a clear existing client segmentation and client service proposition in place it can be very difficult to sort through these new clients in a way that lets the acquirer extract full value. This has major implications for the operation and long term value of the larger IFA firm, and also for the price that they can reasonably pay for the purchased client base.
Is someone a client or just a policyholder if you don’t know them, have never dealt with them and do not understand their goals and objectives? They may deliver recurrent income, but for how much longer if they are not offered a client review? What potential might there be to build this client into a strategic wealth management relationship, or to conduct profitable transactional work?
It is difficult to answer any of these questions without understanding where the client fits into the overall service proposition strategy for your firm and how can you decide this if you don’t know the client? I am talking of ‘client’ in a singular sense, but there may be thousands of people like them, particularly if the acquiring company is building funds under management by acquiring a number of organisations.
Without having your existing client segmentation and service proposition in order it is very difficult to assimilate thousands of new clients into your business effectively. If you don’t have high quality information on the clients acquired it will be difficult to then modify or evolve your segmentation strategy to accommodate the new expanded client base.
The position I have outlined is a very real difficulty for some larger firms. My suggestion is that prior to any further acquisition discussions a clear client segmentation and service strategy should be established for the existing business. By doing this a new potential acquisition can be evaluated more scientifically for fit and suitability. Doing this before writing the cheque may save some pain later!
John Robinson is senior consultant at FP Advance
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