Do you have clients that are costing you time and money? In our industry, we are currently able to provide clients with service without any real analysis of costs because commission enables us to cross-subsidise clients. RDR will remove this option. How many businesses have analysed the profitability of their client segments to prepare for this?
Segmentation and the identification of profitable and unprofitable clients is a key part of the RDR transition journey. It is important now for all businesses to identify the needs of their clients and meet these in a manner that delivers business profitability and mutual and ongoing benefit for both adviser and client.
However, what happens if the client is not profitable and providing the current service levels has an adverse effect on the profitability of the business?
I believe there are two things a business can do with unprofitable clients. You can review the way that you support and deal with them to develop a client proposition and charging structure that means they become profitable or you may decide to discontinue providing a full service and offer limited contact or none at all.
Firms across the country have now adopted the use of retainers as part of a client service proposition and remuneration method to turn around the profitability of certain client segments.
What are retainers?
The adviser agrees a service agreement with the client and that service is then paid for on a monthly, quarterly or an annual basis by direct debit, standing order or cheque.
This ensures that the client is not only getting an agreed service level but that the adviser firm has a steady income stream. The firm also has the ability to turn around clients who might previously have been viewed as unprofitable.
Retainers are not just for “transactional” segments. They are a useful remuneration tactic for many segments and with the right service menu can even be ideal for higher-net-worth clients who are already paying retainers to other professionals such as solicitors and accountants. Do retainers work?
Retainers work when a firm has put together a service proposition that demonstrates real client value. Many firms have taken a leap of faith and have asked their clients what they would want in return for paying a retainer.
Every business has to ensure that whatever service proposition they offer, it is both deliverable and profitable or we are back to square one. People pay for what they value and if we build our service proposition around what our clients want and need, they are more likely to be happier to pay for it.
Retainers only work when clients perceive value for the fee or when it fully reflects the service provided.
If you want to consider retainers, our RDR development site has a full range of material to hep you get started at www.aegonse.co.uk/businessbrain