Can I find a married retired couple with approximately $50,000 of income, a net worth of $800,000 to $1 million who like to golf, spend time with their children and grandchildren, who don’t mind some moderate level of risk and a conservative rate of return. Also they have investable assets of $600,000 and estate planning needs.
Well, guess what, that is an example of a target client. Now where do you find them? How do you market to them? What brings them together? These are the start of target marketing that you need to think about and ask yourself. We could write another book on target marketing, but as advisors this is what we need to do in our business plans.
We can also dissect each component of the profile. It is not necessary to have married people but they are easier to find. Their age can help you target easier. Income is not necessarily important if you are dealing with retirees or business owners, but net worth is essential in all segments regardless of income. Net worth needs to be determined. Hobbies help you find out how your target group networks together. Risk tolerance helps you design your money management programs, since you may not want highly aggressive or speculative investors if that is not your model.
This also goes for rate of return objective. If you are targeting retirees looking for a high rate of return and low risk, this may not be achievable. This helps target the education level of investors in the group. Family status is very important since you must find out from clients who they love. Simply put, money is love. If they don’t love someone and they are driven by greed, this may not fit your personal beliefs and understanding of clients. Finally, if all of their net worth is tied up in real estate and they have no estate planning needs, then they may not need your help. All components help identify what your ideal client should look like.
Strategy: Many financial advisors are running two distinct models. First, the advisor who only deals in the high net worth, high touch type of practice. Second, the advisor who looks after all types of clients and delivers a baseline level of service to all and a premium level of service for top clients.
Both models have one critical element to building. The advisor is faced with declining time as the business grows. So how do you grow your business each year and provide an increasing demand for more service. The short answer here is to target larger clients each year. In three to five years your client base will be dramatically different and you will be forced to get more sophisticated and not only will you improve your services, but you will earn more and have a higher asset base by changing your target upward each year. For example, set a minimum client account size -- if you are in the money management business and a target premium -- if you are in the insurance business.
Year 1 - Minimum $250,000 Assets
Year 2 - Minimum $350,000 Assets
Year 3 - Minimum $500,000 Assets
Year 4 - Minimum $750,000 Assets
Year 5 - Minimum $1,000,000 Assets
Most advisors have never increased their target client, ever. So how do you expect to improve, challenge yourself and make more money. Remember, the definition of insanity is doing the same thing over and over and expecting a different result. When is the last time that you increased your minimum account size?
Grant’s Tip: Profit margins are shrinking, and service demands and costs are increasing. Welcome to the world of a growing financial advisory practice. Advisors continue to take on unprofitable and time or service demanding clients. Why do we do this to ourselves, only to hope that they eventually leave you. With ideal client profiling you also need to ask a few tough questions up front to make sure that you want this client. For example:
-- Mr. and Mrs. Client. Money is important to you, however, I take four to six weeks holidays a year. In that time my team can service your needs, but I will be unable to reach during these times. Are you comfortable with that?
If the answer is no, then you may have a person demanding of high maintenance, maybe you should open the door right now, give them a mint or candy and send them across the street to your competition.
-- Mr. And Mrs. Client. How often do you expect us to sit down face to face and review your portfolio or retirement plan?
If the answer is at least six or eight times per year, and you cannot deliver on that, then give them your competition’s business card and offer them a candy on the way out.
You can create your own service questions to help you choose the clients right for you. An easy way to do this is think of your top three clients, ones that you really enjoy working with. Then imagine if you had twenty more of them. Would you not have your best year ever if that happened?
The challenge of increasing your minimum account size is that you will have clients that you might have outgrown. There are two schools of thought on this one. Some say fire your bottom 10% of your book each year. Others say service them with your team or hire people to service them.
Regardless of what you make sure that you segment them first. The way to segment clients are not into A,B,C clients ( which is the old way) but to put them into a grid based on the following:
• Assets under administration
• Client potential
• Referrals generated / referability
• Profitability
• Servicing time
• Nice people
• Want your help and trust you
The next thing you must think about is your time and your target number of clients. How many clients can you truly service in a sophisticated high touch relationship? For example if you feel you can service 150 clients at an average asset base of $500,000 then your book of business target is $75 million for yourself. Then your service team will pick up the rest say $25 million. Your total book of business will be $100 million. Develop your targets around a realistic numbers of clients you can personally handle. If you are working in a team the numbers may be different, but each person only has so much time.
Potential Results: Bigger fish = more fish per pound. Make sure they don’t have too many bones with their last advisor.
Simple Rule: An advisors income is direct proportion to the income and assets of their clientele.
