Every advisor has a few small clients that seem to have fallen by the wayside. They call you infrequently, or not at all, have few assets under management and often simply take up space on your client roster.
How can you turn the tables and get these smaller, inactive clients to potentially become your best clients? Most advisors are aware of the 80/20 rule; 80% of your income comes from 20% of your clients. Modifying this principle a bit, I often find that 80% of revenue comes from 20% to 40% of your clients.
This creates a dilemma. Advisors love to provide advice. Inactive clients often pull at your heartstrings, even though logic dictates that you should focus on your larger accounts. So what choices do you have?
First, you can remove the smaller clients from your practice, either by turning them over to your home office or transferring or selling them to another advisor. The pros: It provides a quick, turnkey way for you to work exclusively with your high-net-worth clients. The cons: While easy to do on paper, severing relationships is sometimes emotionally painful.
Second, you can give the smaller accounts to your junior associate. The pros: You can still maintain a relationship. The cons: Junior advisors will have a difficult time making these smaller accounts profitable if the senior advisor couldn't.
Third, you can implement a client reactivation campaign. The pros: With the right approach, you may uncover inactive clients who will transfer more assets and become active again. The cons: It takes time and effort to implement a reactivation campaign.
Sometimes it may be easier to generate new business from your current clients than to find new clients. Fortunately, you don't have to choose between the two. You can do both by answering these questions. First, how can you segment your client base? Second, how can you reactivate inactive clients and finally, how can you provide more comprehensive service to all of your active clients?
Segmenting Your Book
Let's begin by addressing how to segment your book of business. Most broker-dealers give advisors certain back-office capabilities to help rank your client base. (If your back-office lacks these capabilities, you will need to do it manually on paper or in Excel.)
- Step 1: Create a list of all your clients ranked by assets. The client with the most assets is at the top, the one with the least assets at the bottom.
- Step 2: Divide the list into 10 equal groups.
- Step 3: Calculate the average account size of each group (total assets per group divided by number of clients in the group).
- Step 4: Put your top 20% of clients in group A and your middle 40% of clients in group B.
- Step 5: Divide the remaining 40% of clients into two groups. Group C is those clients who have a close relationship with your A or B clients. Group D is the remaining clients who don't have much of a relationship with anyone other than you.
Now, you may wish to edit your segmented client base. For example, if you know one of your clients has sizable assets that may be available for transfer, you may wish to move that client into your A list. Or, if you have a client in your A or B list who really undervalues your services, you may wish to remove them completely. Of course, all clients you keep need to be serviced properly, or you run the risk of having them file a complaint. (But creating a service model for each segment is a topic for another article.) Next, how do you implement your client reactivation campaign?
Review your C and D clients and ask yourself how you acquired them. Were they assigned to you? Did they come over when you purchased a practice? Will you repeat this process to acquire more clients in the future? If so, why? If not, what will you do differently?
Now, determine who from the C and D list will be included in your reactivation campaign. Create a new spreadsheet listing them. Then prepare the following letter:
Please contact us at (your phone number) immediately regarding your account.
When the clients call, either you or your assistant will schedule a review meeting. I don't recommend conducting the meetings by phone unless absolutely necessary. If the clients don't respond to the letter, call them within seven to 10 days to schedule a meeting. If the clients don't respond to your voicemail, send another letter and repeat the process until you get them on the phone and schedule an appointment. If the clients refuse to meet with you, remind them you need to know your clients and this is how you do it.
When clients come in for their meetings, begin by updating their basic information, like where they live and work. Do they need to update their risk tolerance profile? Have their goals changed?
Ask if they maintain financial accounts outside of your firm. The reactivation opportunity will apply primarily with clients who have assets available to be transferred. When you identify these clients, educate them about the process you use and why consolidating assets with you will help them. You will be better able to monitor investments and better able to advise them of proper diversification strategies.
At this point, you need to establish trust and spell out the type of service you will provide that, for whatever reason, they may feel they have not received in the past. Once the transfer process is completed, schedule another meeting to review their goals and discuss strategy. Meet with clients you have reactivated on a schedule that you both feel will provide the service they need, initially at a minimum of every six months.
I have seen advisors implement this strategy and generate more than $400,000 of business within two years. But it does take time and effort. Only you can decide if it merits implementation in your practice.
Now let's discuss how to provide more comprehensive service to newly reactivated clients, as well as to A and B clients.
As a financial professional, do you want to:
A) Help people grow their portfolio within their risk tolerance and time frame?
B) Help people make sure they never run out of money?
C) Both of the above?
If your answer is A, then you need to create a menu of services for wealth management. A menu typically means three tiers of service with three different fee structures.
For example, you may have one tier of service using exclusively mutual funds or exchange-traded funds. Another tier may use a turnkey asset management program (TAMP). Another more complex tier may incorporate a combination of funds, stocks, bonds and options.
Consider pricing based on the complexity of the service you provide rather than strictly account size.
If your answer is B, take a look at the financial planning software your firm provides. Does it cover all six areas of financial planning, or is it more of an asset allocation software? If you aren't sure, discuss it with someone at your firm familiar with the software.
Income and expense management, retirement planning, estate planning, tax planning, insurance planning and investment planning should be included in a comprehensive plan. This approach is the most common for helping clients address the issue of running out of money.
If you decide to provide a combination of A and B, that's fine, too. You just need to create a menu of the services you provide and the pricing of each one. To provide comprehensive service, create a tiered service and pricing model. Show your clients an understandable services menu and educate them about the differences. Finally, let them choose the level of service that is right for them.
Todd Colbeck is principal and founder of the
Colbeck Coaching Group, a subsidiary of General Business Center.
If you would like an Excel template for your client segmentation
or reactivation campaign, please send an e-mail to this address.