When the revenue from your top clients is funding your bottom clients…



Are your top clients funding your bottom clients?

When you dig into it, the answer really is YES.

If you are constantly working in your business, you may never ever have to make the often times difficult decisions necessary to solve this problem.  If you’re working in your business all the time, you may not even know this is a problem.  But, as soon as you begin to work ON your business, this problem becomes very evident.

So let’s work on your business in this post.

I get it.  When you first began in this business, you worked with anyone who could “fog a mirror”.  You would drive to the ends of the earth for a new client.  The focus was volume.  This is what paid the bills.  This is what mattered.

But then, one day, you woke up exhausted (and a little frustrated).  You weren’t growing.  You were plateauing.  So, then you began to segment your business.  A clients, B clients, C clients, etc…  And if you really dug into the numbers, you realized that every time you met with a non- A or B client, you lost money on that meeting.  The only way you were still profitable was because your A and B clients were funding your C and D clients.

Now, imaging this.  What would happen if you didn’t have to worry about the C and D clients and were able to free up some capacity in your business to take on more A and B clients.  What a wonderful life this would be.

So, what do you do?

Well, as I see it (and I welcome comments on this topic), you have two choices.

  1. Bring on a junior advisor to assist in managing these C and D client relationships to help in making them profitable again, or
  2. Sell this portion of your practice to another advisor who has the time and capacity to properly service these clients.

So, let’s analyze the pro’s and con’s to each choice.

Bring On A Junior Advisor

This really is the same business model that the Dental world has embraced.  Here is what I mean.  When was the last time your dentist cleaned your teeth?  Exactly.  Never.  It was the dental hygienist.  Isn’t this what the junior advisor is?  A financial hygienist?

The logic behind this business model can be quite sound.  The senior advisor brings on new clients, gets them set up with a proper financial plan, assists the client in implementing all of the recommendations and then, the client’s plan is now on “auto-pilot”.

So, what is required during the review meetings is to make sure that the clients plan is on track and that there are no major life events that need to be dealt with.  In essence, the “financial hygienist” can review the clients plan, identify if there are any needs and if there aren’t, this means that the clients plan is on track and they are good for another six-months.  And, the financial hygienist tells the client that if anything changes, that they are to call so you can assist them with the change.  If not, they can look forward to their next review meeting.

In the event that there is a need identified, then the “financial hygienist” can book a meeting with the senior planner to make sure this need is properly analyzed and proper solutions are presented.

The net result is that the planner is only working on higher revenue generating activities and the client is always properly serviced.  This may be a wonderful business model.

Now let’s analyze solution 2.

Sell A Portion Of Your Practice

The logic behind this solution is to sell the clients who don’t meet your “ideal client profile” to another advisor where they are the “ideal client”.  The new advisor pays for the right to service these clients and the old advisor get’s compensated up front and instantly creates capacity in their own practice to be able to take on new A and B clients.

The clients are then better serviced by an advisor who’s business model supports these clients and everyone is happy.

Both solutions accomplish the following key points:

  • Client is better serviced
  • Practice capacity is created

So, which one do is right for you?  The answer becomes revealed through the cost of implementation.

Let’s take a look at the costs associated with option 1.

For this solution to work, you need to bring on a capable junior advisor who is motivated to work with your clients and has no aspirations on opening up their own business.  Someone who is truly looking to to be part of a team as opposed to creating their own.

My experience has been this.  To find someone who is qualified, they are very expensive.  This added expense can only be seen as an investment if you are able to translate the extra time (capacity) into new A and B clients.  If not, you have added a major expense to your practice.  If this person is reasonably priced, they usually don’t have the experience required to properly manage these clients and will not represent you well during the client meetings and take up a lot of your extra time (which goes against your ability to properly utilize the extra capacity).  At the end of the day, you have added to your problems, added to your payroll, added to your liability and your clients begin to resent working with the new advisor and want to keep working with you.

Now, option 2 allows you to “partner” with another qualified advisor who will actually bring some value to the table when working with your old clients.  These clients will quickly understand that you are no longer available but will also feel comfortable working with the new advisor.

You will have received some revenue up front and truly created capacity in your practice to bring on the new A and B clients.  You have extra cash available to put towards marketing for those new A and B clients and at the end of the day, everyone is happy.

So, as a business owner, what are we really trying to create?  The answer is a profitable business which we are passionate about that allows us the freedom to do what we want, how we want with whom we want.  Which of these options provide you with this?  That is for you to decide.  However, I’m sure you can see where my bias lies.  I’ve done them both.  I speak from experience.

Let me know your thoughts.  Have you ever had to solve this problem?  If so, what and how did you do it?  Please comment below.

6 Responses to “When the revenue from your top clients is funding your bottom clients…”

  1. Harley Lockhart Reply May 4, 2011 at 5:24 pm

    Here are a couple of observations:
    1. This whole article appears to be based on a self-serving motivation, ignoring, for the most part the priority of client interest. I know you mention better service to the client, but that appears to be a side effect, not a primary motivator to make the change.
    2. Bringing new advisors into the business is one method of preparing for succession. Again this process allows for the least disruption to your clients. When you’re gone (and you WILL go), the clients don’t have to start in a totally new environment.
    3. If the newbie deals with C and D clients, client requirements are likely less complicated and more appropriate to a lower skillset.
    4. In addition, the supervision you provide will allow for monitoring of the continuing high standard of care your clients deserve.
    5. One of the greatest risks to the business is the scarcity of new practitioners. The old reliable life insurance career shops no longer flood the industry with raw material. Bringing on a newbie is good for the industry.
    6. In conclusion, selling off your clients is easier and may be better, in the short run, for you. In the long run, for your clients, the industry and I would argue for you, the tougher, riskier route of bringing in new people is far superior.

    Advocis motto “non solis nobis” — not for ourselves alone. Think about it.

    • Hi Harley,
      I do appreciate your observations. It is evident that this is a real issue for a lot of advisors. The purpose of this forum is to discuss/debate the various viewpoints.

      The challenges faced at the smaller more boutique firms is the issue of proper training for “newbies”. There often times is not a lot of extra time to properly train and as such, the risk of letting a newbie lose on your existing C & D clients in my mind is not fair to them. They shouldn’t be the newbie’s training ground. Opting to migrate these clients to an advisor who has experience but is actively looking to grow seems to be a solution that accomplishes a lot of what you have touched on. It does support the newer advisor’s who are in the business and have shown a real commitment to the business, it puts an advisor who is capable in front of them and allows a proper matching of skill of the advisor and need of the client. Thanks again for your comments.

  2. Scott

    Thank you for writing this, I think you are addressing a problem that numerous practices face. For our practice, the problem is a bit more complex. As you noted, our definition of an A or B client in many cases has changed, but what seems to be the bigger issue for us is relatives. Many times the A, B or even C clients have family members – children who become adults, parents and grandchildren that are clients. Option 1 has worked, but as you said it is expensive and as our junior hygenists become more experienced, it becomes harder to support this model. Because we’re talking about family members, option 2 is really a non-starter for us and we’ve been exploring creative ways of developing an option 3.

    • Hi Mary,
      I hear you. The issue of family members is challenging. However, we (as I’m sure you do) tend to look at “Households” as opposed to individual accounts or clients as our relationship focus. Generational planning is more important now than ever so bringing on the children into the fold makes sense from a longevity standpoint. The assets will flow to them eventually and when they do, we want to have a relationship with that next generation.

      What other options are you considering? I’d love to hear more about them.

      Thanks again for your comments.

  3. I’d like to implement option 2 but a challenge I keep having it defining a bright line for the cut off. There always seems to be a reason why “this” particular client should be kept and then I don’t get anywhere. An example is the say, a 45 year old with little AUM with me but a medium size 401k–someday they will retire/leave and the money needs a home. These someday D to A/B client multiply like rabbits if you know what I mean.

    • You do make a good point. The way I see it is this. Each practice has its own capacity limits. Everyone’s are different. But, when you hit them, service levels to those D clients begins to drop and the hassle factor of working with them tends to go up. Making sure they are receiving the level of service they deserve is your best practice and if you can’t do it, it is your responsibility to find someone who can or simply be honest with them and let them go. In our business there is not a limited number of clients available to work with. Great value is always sought after so the opportunities out there are great. Operating at capacity simply limits your ability to bring on more challenging and rewarding clients. You can never be wrong when you are honest with your clients.

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