Less Is More: Growing Your Business by Focusing on the Ideal Client

By Sharla D. Hamil

How many advisors do you think had personal contact—a face-to-face meeting or phone call—with their clients following September 11? Were you able to contact all of your clients? Research conducted by Russ Prince for Merrill Lynch Investment Manager in the aftermath of September 11 indicates that only 16.9 percent of affluent investors and 24.9 percent of retail investors had personal contact with their advisor.

The study showed that if the advisors did not contact their clients, the clients turned to friends, family and the media. Almost no clients turned to their advisor's Web site. Do you want your clients to get investment advice from their friends, family or the media? If their advisors contacted them, they turned to no one else for financial advice, and they almost universally followed their advisors' advice. Clients who had personal contact with their advisors believed that the advisor had a higher degree of professionalism and they truly understood their clients. This group also provided their advisors with referrals.

In a previous study, High-Net-Worth Psychology, conducted by Russ Alan Prince, there were many reasons that advisors gave for not contacting their clients during a market downturn. Most said that they were busy "putting out fires." This is not productive and it does not enhance your relationship with your clients. Others were busy figuring out the market. Has anyone really figured it out yet? Some thought that it was too early to call their clients. They were scared that they would not have all the answers. As shown in the research, the clients were not looking for answers, just comfort. Still other advisors were afraid that their clients would be upset. But clients are more often upset if they do not hear from advisors and may well let them know by changing advisors.

Another challenge many advisors faced was that they have too many clients. This problem has occurred because 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. Too often, advisors focus on simply getting new clients when they should focus on getting the right kind of clients. We have found that in order to better serve your clients, build strong relationships and have a healthier practice, you need fewer clients. In the CEG Worldwide study, Maximize the Bottom Line, advisors with net incomes of $75,000 to $150,000 have an average of 337 clients. Advisors with an average net income of more than $150,000 have an average of 172 clients. Advisors with net incomes of more than $1,000,000 have far fewer clients.

To grow your business dramatically, you have to allocate your resources effectively. If you maintain clients who demand too much of your time so you cannot achieve the level of success you want, you have too many of the wrong type of clients. You can do these clients and yourself a great service by releasing them to work with other professionals who can better serve them. This will allow you to focus on those clients that you can serve both well and profitably today and to attract those affluent clients who are more appropriate for your business going forward. You should use this five-step process to determine how to best reposition your resources for success.

Step One: Profile your ideal client We have found that the primary success factor is being client focused. 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 easiest way to increase your income is to clone the top 20 percent of your clients. First, identify your top ten clients. Make sure that you enjoy working with these clients and you can serve them well. Look for patterns that will help you target niches that you have worked well with in the past.

Using your top clients as a guideline, develop your ideal client profile. Consider both demographic and psychographic characteristics (e.g., age, sex, income and occupation, as well as personality, values, motivations and key needs). A sample ideal client profile might be:

• Highly successful and well respected by his or her peers
• fifty years or older
• Good businessperson
• Friendly, helpful and influential
• Minimum of $500,000 of investable assets

By focusing on one or two niche markets you will be able to understand all aspects of your target market including the challenges and problems. Determine the solutions that you can offer them. Remember that it is important to position yourself as a problem-solver.

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 gross revenue over the last year. Review the list, beginning from the bottom with the clients who provide the least revenue, selecting those clients who do not value your services, require a disproportionate amount of time or do not provide referrals. Of the clients left on the list, compare them to your ideal client profile.

In considering your ideal clients, answer each of the following questions:

• Do they meet your minimum assets under management requirement?
• Are they members of your niche market?
• Do they have financial problems 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 in your niche market?
• Would you enjoy working with them?

Step Three: Evaluate your options for transferring inappropriate clients. Total the revenue from these clients who you would consider releasing. 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 to another advisor, transferring to a house account or simply suggesting that the client might be better off with another advisor.

Step Four: Review 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. Let compliance review any written communication that you have developed. Map out the process that you will follow so that compliance will have a clear understanding of what you are trying to accomplish for the client.

Step Five: Complete transfer. Set up a timeline and complete the transaction. Then reallocate your resources to your existing profitable clients, as well as to a new marketing campaign to attract your ideal clients.

You are now on your way to setting up your business for success.