“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.
Advisor says: A year ago, i acquired a book of business from a retiring financial advisor. As a result, we added 275 new households to our practice, bringing our total number of clients to approximately 500.
Overall, I am pleased with how well the transaction went, although I admit I underestimated the amount of work needed to integrate the new clients into our systems and processes. The vendor’s assistant was a great help through the transition and we retained 95% of the clients, largely because of her efforts. She has now joined our team and we are well positioned to meet any client service or administrative requests.
My bigger concern is the workload that I have placed on myself. My philosophy is that every client should have a financial plan and regular reviews. Consequently, I am committed to completing or reviewing 275 additional financial plans and to who knows how many review meetings over the next year. Have I bitten off too much?
Coach says: First, congratulations on the successful transition and great client retention. To answer your concern about “biting off more than you can chew,” you are probably correct.
There is a management theory called “span of control,” which typically refers to the number of subordinates for whom a manager is directly responsible. I believe it applies to advisory practices equally if we replace the term “subordinates” with “clients.” If the span of control gets too wide, chaos often results.
Many practice-management specialists feel that one advisor, supported by one assistant, can manage approximately 150 client relationships effectively. Obviously, the actual number in any practice depends on the complexity of client situations and the types of services provided.
For example, an advisor who provides full wealth-management services, including discretionary portfolio management, and meets with clients on a quarterly basis won’t be able to manage as many clients properly as could advisors who specialize in insurance products or “buy and hold” mutual funds and for which client contact often is less frequent.
The key is to do an assessment of your business – the nature of your clientele, the time required to deliver on your service promise, the systems and support team you have in place – to determine your effective span of control.
Let me give you an example of an advisor with whom we worked to address the problem of loss of control in his business:
The first time I walked into Jack’s office, there were about half a dozen people sitting in the reception area. The palpable tension in the room told me some of them had been there for quite a while. In fact, I had to wait almost half an hour before a harried-looking Jack emerged to invite me into his boardroom to meet with him and his team. The story unfolded quickly.
Jack had recently acquired two books of business, along with the two advisors who had built them. In total, the practice now had almost 500 clients, three advisors and four support staff. “Turmoil” was the best description of what was going on. Client service was limited to “firefighting” and responding to the loudest requests. Clients were leaving without notice. Staff morale was poor and Jack was burnt out from the long hours he was putting in.
One of my first questions was: “What is your client segmentation and service strategy?”
Not surprising, Jack’s team didn’t have one. Jack was (mis)managing his original 225 clients. The other advisors were dealing with the clients they had brought with them and the support staff were trying to keep up with whatever had to be done to meet client demands and ongoing business needs.
Our first task, therefore, was to work to define four client segments: first, according to objective factors, such as revenue, assets under management, number of accounts and so on; then, based on subjective characteristics such as likability, willingness to refer and service expectations. From there, we defined first point of contact, levels of service, review frequency and client engagement activities for each level.
Our objective was to have each advisor as primary contact for their Top 50 clients, with three of the four support staff each assuming responsibility for one client segment. For example, the most experienced support staff member took on all the Tier 2 clients; the second-most experienced took on Tier 3 clients, etc. The least experienced support person happened to be the receptionist and she accepted responsibility for the role of “traffic manager” to ensure clients were connected with the team member to whom they were assigned.
Of course, we had a rule that if a client insisted on talking to someone else, he or she would be given that opportunity. Everyone agreed that this strategy was a great arrangement that would dramatically increase efficiency.
Except Jack: “There is no way that I can give up 175 of my clients to someone else to service.”
“How about half?” I asked. “Would you indulge me by trying to cut the number of clients for whom you feel you absolutely must have personal responsibility by 50%?”
Jack agreed to try.
At our next meeting, Jack announced that he had cut his client list down to 150 households. After reminding him that 150 was not 50% of 225, I asked Jack if he would be willing to try the exercise again – to see if he could cut his list of 150 by half.
Once more, he agreed to try.
The next time we met, Jack defiantly said that his client list had been reduced to 85 clients, but that was absolutely as low as he was willing to go.
I decided not to push him any further. We then set out how Jack was going to deepen his relationship with those who now were his Top 85 clients.
At our next quarterly meeting, Jack pounded his fist on the table, proclaiming: “This isn’t working. I am not seeing enough people. Our business is way down!”
At that point, the team broke out laughing. “Actually, Jack,” said the senior team member, “our business is up by 30% over last year. We no longer have lineups in the reception area, morale is great and, by the way, your wife stopped by the other day to say how thrilled she and your kids are to be reacquainted with you. This strategy is working!”
The final chapter in this story is that at our following meeting, Jack repeated his pounding on the boardroom table and protesting: “This isn’t working!”
This time, his complaint was different: “I am uncovering things among my 85 clients that I didn’t know and wasn’t acting on. I am getting overwhelmed by the opportunities to solve new problems and develop additional business with them. I have to get the number of clients for whom I am responsible down to 50!”
I just smiled. Mission accomplished!
So, the lesson here is that although you may have “bitten off too much,” you don’t have to choke on it. Ask yourself: “If I were buying my business today, what resources, systems and people would I need to meet the standards of performance I want?”
Then, organize yourself to deliver on your service promise.
George Hartman is CEO of Market Logics Inc. Send questions and comments regarding this column to email@example.com. George’s practice-management videos can be viewed on investmentexecutive.com.