"If you're like most advisors, your client base will be subject to the Pareto Principle: 80 percent of your revenue will be generated by 20 percent of your clients."

The Wrong Crowd

By John Bowen

Most financial advisors jump from opportunity to opportunity, never fully establishing themselves in any long-term business strategy. In so doing, they often acquire inappropriate clients, making it difficult for them to focus on the clients for whom they can add the most value. To grow your business dramatically, you have to allocate your resources effectively. If you maintain clients who demand your time but do not allow you to achieve the level of success you want, you have too many of the wrong type of clients.

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You can do these clients and yourself a great service by releasing them to work with another professional who can better service them. This will allow you to focus on those clients that you can serve both well and profitably today and to attract those clients who are more appropriate for your business going forward. Use this five-step process to determine how to best reposition your resources for success:

Step one: Profile your ideal client. The primary success factor is being client-focused. Develop your ideal client profile to make sure that you're working with clients you will be able to serve well. Consider both demographic and psychographic characteristics (i.e., age, sex, income and occupation, as well as values, motivations and key needs). In considering your ideal client, answer each of the following questions:

• Do they meet your minimum assets under management requirement?
• Are they a member of your niche market?
• Do they have a financial problem that you can solve?
• Have they been referred by a delighted client?
• Are they geographically close to your office location?
• Do they have an influential group of affluent business associates and friends?
• Do you enjoy working with them?

Step two: Identify those clients who are difficult, unprofitable and inconsistent with the ideal client for your new business model going forward. Sort your client list by declining gross revenue over the last year. Review the list, beginning from the bottom, selecting those clients who do not value your services, require a disproportionate amount of time and do not give you referrals.

Fight the urge to hire an assistant to service those clients who are no longer profitable. Think about how you're going to have to manage and pay an assistant to service the clients that you can no longer service profitably yourself. You will be making a bad situation worse.

Step three: Evaluate your options for transferring inappropriate clients. Add up the revenue from the clients that you would consider releasing. If you're like most advisors, your client base will be subject to the Pareto Principle: 80 percent of your revenue will be generated by 20 percent of your clients.

Next, calculate the amount of time and resources that you would free up to focus on those clients you currently serve and the new clients you are going to develop. Consider potential solutions such as transferring and/or selling to another advisor, transferring to a house account or simply asking the client to find another advisor.

Step four: Review the planned transfer with compliance. The first rule of any transfer is that it must be in the client's best interest. In any material transaction, make sure to include your compliance professional to ensure success.

Step five: Complete the transfer. Then, reallocate your resources to your existing profitable clients, as well as to a new marketing campaign to attract your ideal clients. You have now taken the first steps to ensure your business is ready for the next level of success.