Jason Wheeler
Jason Wheeler

The Measured Practice

You can ask for referrals and recruit prospects. But by tracking the time spent on each relationship – sometimes down to five-minute increments – with a tight focus on efficiency, these advisors have grown their practices from the inside out.

Jason Wheeler founded his advisory firm in 2005. Since then, he has cared less about having the most clients or the highest AUM in the industry. His preferred measure of success? A healthy profit per client.

One reason is that his clients are on average 72 years old, meaning he’ll eventually be answering to multiple heirs over the same level of assets. For another, he tries to contact clients 30 to 35 times a year through meetings, emails and telephone calls and he needs to be able to engage in all that communication profitably.

To maximize profit per client, Wheeler measures how many minutes his staff spends on each account, sometimes down to the minute; he’s introduced new pricing structures for financial plans. He’s been able to increase the profitability of even his smaller clients by almost 50%. “We’re always looking for ways to raise our client profitability,” says Wheeler, whose firm, Wilmington, NC.-based Pathfinder Wealth Consulting, has about $95 million in assets. “It’s a pretty essential part of our success.”

There are a lot of important measurements you need track to run a successful business but one of the most basic—and vital—is how much you earn for each client you serve. It shows whether all your efforts, from your service model to your pricing, are really paying off.  And it serves as a guide to how you should be spending your time.  “By making sure each client relationship is profitable, you’re going to do a better job of allocating your limited resources to the right places,” says Scott Slater, managing director, business consulting, Schwab Advisor Services.

Smart management of client profitability is a hallmark of successful companies according to FA Insight, a Tacoma, Wash.-based consulting and market research firm specializing in financial services. So-called standout firms, the top 25% of practices, make considerably more profit per client than other practices, according to a recent study of independent firms conducted by FA Insight. For “Cultivators” with $500,000 to $1.5 million in gross revenues and “Accelerators” with $1.5 million to $3.5 million, it’s more than double that of their peers, while “Operators”, with $100,000 to $500,000 in gross revenues, earn about four times more per client than comparable firms. That’s despite the fact most standouts have lower revenue per client than non-standouts.

But as Wheeler has discovered, managing client profitability generally requires action on multiple fronts. Of course, you need to provide good service and keep bringing in the business. But you also have to address everything from your service model to your fees and operation systems. 

Take the service model: How frequently do you meet with clients and how much time do you spend on the services you provide for them. “Do you want to, say, meet with your most profitable clients quarterly and your smaller ones once a year with three phone calls? You need to make those kinds of decisions,” says Slater. Of course that means segmenting your client base.

It sounds like a no-brainer, but the key is basing your decisions on each account’s profitability. Brian Ward, head of Ward Financial Advisory Group of Wells Fargo Advisors in Nashville, for example, divides his clients into platinum, gold, silver and bronze sections, but determines those segments according to revenue generated by client, not amount of assets. “You may have a guy with $2 million in assets, but if that’s in a concentrated stock position, he may be a large asset client, but he’s not a large profitable client,” says Ward, whose firm has $3.2 billion in assets. (He also has been in Rep’s Top 100 Wirehouse Advisors in America).

For Chuck Hammond, whose RRG, based in Hanover, Pa, primarily does 401k plans, finding the right client also has been key to increasing profit per client. That means catering to small to medium sized businesses with more, as he describes it, “paternalistic” approaches. The reason: Such companies tend to be willing to let employees meet with him more frequently and to have greater flexibility over when they can get in touch with him. And having that more regular contact makes it easier for him to sell other product lines, like disability insurance, to both employers and employees. What’s more, according to Hammond, advisors who sell three to five product lines to corporate clients have an 80% chance of keeping those accounts for five years. Thanks to these, and other moves, Hammond has been able to increase his profit per client “dramatically” since starting his firm seven years ago.

For many advisors it’s all about time: how much you can give to each client so you’re providing the right level of service and doing so profitably. To do that, of course, you need a basic understanding of the number of hours you and your staff spend on every account. “You have to get the facts,” says Wheeler.

Two years ago Wheeler started using his CRM system to measure activity per client in five-minute increments. Staff members would record how much time they spent on everything from answering a phone call to preparing for a meeting. Wheeler started analyzing the results looking at how much service the firm had been giving a, b, and c level clients. “I could see which clients demanded not just my time, but staff time, as well,” says Wheeler. His finding: Many c accounts expected to receive the same amount of service as everyone else, and that was a drain on profits.

With that revelation, Wheeler decided he needed to make some changes. He met with many of his less-profitable clients and told them that with their financial plans firmly in place, they didn’t need as many face-to-face appointments. They would get quarterly reports, regular market commentary and the like, but they would reduce their in-the-flesh meetings to once a year. “It has worked almost every single time,” he says. “Usually, when you discus this kind of thing with a rational person, they understand.”

According to Wheeler, he’s only had one client object: A long-distance relationship—the client was in California. He eventually decided to use another advisor closer to home.

Creating operational efficiencies is another way to make sure you’re spending the right amount of time with clients. Although three-quarters of a firm’s expenses generally involve personnel costs, according to Dan Inveen, principal and director of research at FA Insight, the goal isn’t necessarily to reduce your staff. “It’s about how to make better use of your people and free up your time,” says Inveen. More important is building efficiencies through systematic, documented processes for just about everything you do, from quarterly reporting to bringing on new clients.

In other cases, the answer may be to hire more support staff, according to Inveen. For larger firms with $2 million or more in revenues, that may mean bringing on a dedicated chief operating officer; smaller practices can hire a junior advisor to work with smaller clients—or even an assistant to take non-revenue generating duties off your plate. Ward recalls that when he first started in business, he hired an assistant as soon as he could “to make me more efficient”, even though that person’s salary represented a significant percentage of total revenues.

Technology, of course, also plays an important part in building operational efficiencies. “It’s not using more technology, but using technology smarter,” says Inveen. Ward, for example, is upgrading his CRM system so he can seamlessly do everything from processing ACAT forms to updating financial plans. For his part, Wheeler used to employ the services of a transcription service to record notes after every client meeting, a process that took about four hours. Now, he records his notes into his iPhone as soon as his client leaves, including tasks for each employee, and sends them to a staffer, who uploads the information into the CRM system.

Some advisors have been able to use technological tools to operate their firms without any employees at all. For most of the 20 years he’s run his practice, Rick Burton, who heads Burton Financial in Quincy, Mass., has done so without an assistant. But over the past year, after he struck deals to buy the practice of two retiring advisors, he realized he had to make some changes. So, he recently started using the virtual assistant services of his B/D, Cantella, to take over a lot of the administrative tasks he had done himself. He figures it saves him about 10 hours a week of work, freeing him up to do other things and adding to his client profitability by as much as 25%.  

Wheeler, like many advisors, finds it’s easiest to introduce the most time-saving technologies to more Internet savvy clients, many of whom tend to be younger. During his initial meetings with clients, Ward finds out how comfortable they are with technology, then, if appropriate, goes over procedures allowing them to visit their online accounts on their own. It’s a lot more efficient and streamlined a process for Wheeler, too. “If I want to know someone’s mortgage balance, I don’t have to contact the person, I can just call up the information and get it immediately,” he says.

Similarly, Ward has found that such clients have embraced the ability to log into a password-protected site where they can get access to all their aggregated account information. “It only holds for a certain section of the population, however,” he says. “But they like it.”

You also need to think about your pricing structure. “You should align your fees with the cost of service,” says Inveen.  While the usual situation is for a few profitable clients to subsidize the rest, according to Inveen, your goal is to make sure what you charge fits the amount of work you’re doing for all your clients. He points to one advisor who, about a year and a half ago, tapped his client advisory board for its feelings about his fees and whether he could raise them. After considering several options, they decided to raise the basic fee slightly and, more important, to start enforcing the AUM minimum more consistently.  Few clients left after that and, according to Inveen, “It’s a fair assumption they’ve raised their client profitability, since.” Another tack: Charge less-profitable clients additional fees for such tasks as producing a financial plan.

Ultimately, however, you can’t go overboard.  You want to create accounts that don’t just make money, but also last. “When I look at client profitability, I’m also looking at how to build long-term relationships,” says Ward. In fact, sometimes it pays to take a loss on a client temporarily. Last year, Wheeler, for example, spent an inordinate amount of time with  a client whose husband had passed away, attending to her estate. But, she ended up referring three friends who, say Wheeler, “are my biggest clients ever.”  The bottom line: Managing client profitability involves a healthy dose of another ingredient—common sense.

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