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Seeing stars

The trick is not to simply focus on profitable clients but to find those blue-chip stars of the future who will add value to an adviser’s business over time

Nick Kelly Managing director Sesame

We can all struggle to see the wood for the trees on occasion and the challenge with developing a strong client proposition is not that we don’t know what we are good at, rather that we fail to package it in a way that can be understood and valued by the client. That said, we also need consistently to deliver on the promise we make to clients and do so profitably.

Let me pose three rhetorical questions: Why do clients come to you? What more could you offer to enhance service and profitability? What do you need to do to “ensure” the business model and client proposition you have matches the one you think your clients want?

Regardless of the approach to advice you adopt, few would dispute the answer to the first question is your relationship with the client is what keeps them coming back. It is you, the adviser, that clients buy in to rather than the products you are recommending. This is a change of mindset for many but is all about ditching the image of product salespeople in favour of professional advisers.

And any business, regardless of the sector in which it operates, needs to decide on its target audience and to make sure those clients will prove to be profitable. So how do you go about identifying those target clients?

The key principle is that if a client wants an ongoing service, they will need to pay for it

This is a real dilemma for many advisers who have often built their reputations on being local champions of advice for all clients. However, the old adage that you get 80 per cent of your profits from 20 per cent of your clients is as true of an advisory business as it is of any other. So start with the customers that you already have and don’t be afraid to be ruthless in your approach.

Think about customers that you want to make your blue- chip clients, then customers you need to deal with on a different basis (perhaps on a transactional basis) and those that it may not be viable to deal with at all. The key principle in the future will be that if a client wants an ongoing service, they will need to pay for it.

There is a further group that segmentation exercises often miss out but remain worthy of attention. These are the stars of the future, who you are confident will one day become your new blue-chip clients but who are probably not delivering right now.

A possible solution to how best to maintain these clients until they become more active is to put this group on a modest retainer – just enough to cover your costs. You will only be able to do this if you have been ruthless in other areas. In a sense, this can be how you spend your marketing budget. You may be prepared to “spend” revenue subsidising this small proportion of your clients because they are an investment for the future. Another way of making this group of clients more viable may be to maximise your share of their more transactional purchases such as general insurance.

More and more advisers are examining how they can re-model their business to reflect the new market. They told me that segmenting their client base was not as painful as they first feared and believe that it would ultimately prove to be very rewarding.

Similarly, I used to speak to advisers who did not sell protection or general insurance and others that did not have clients suited to platforms or wraps. However, the past 12 months have shown us that these same clients do accept direction from those same advisers and more “off piste” advice is now increasingly being regarded as business as usual.

Whether encouraged by the need to maintain profitability or simply to achieve a return on the huge effort required to become diploma-qualified, I would argue that many firms would benefit from looking at what they currently offer their clients, look again at their fact- finds and the circumstances of both new and, importantly, long-standing clients and reconsider why clients come to them.

A healthy client proposition is about understanding local customers, determining your ideal target market, deciding which skills you need in-house and which are available elsewhere to service that market.

The trick is not just to focus on the clients who are profitable today but to recognise the profile of those clients who will add value to your practice over time and finding mechanisms for nurturing them until they can make you money – without incurring a loss.


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