Building a real business in the professional advice market


I concluded my second article in this series (Goals Based Planning – more than just a label – Adviser voice 9th July) by alluding to the staggering commercial gains I was witness to at IPAC Securities…a business that uniformly adopted a GBP process in the late 90s.  To refresh your memories, please see below.

For those of you too young to remember, IPAC was then one of the most successful planning businesses in the country which eventually sold for a reported $120million. Embedded in this sale price was the premium paid for the way the client advice process had been packaged and for the 400% productivity gains that had been made in servicing ongoing retainer clients in the years approaching the sale.

That’s right…400%. Let me explain how…

Without context there is no meaning
Twenty was unique.  The financial planning division was split in two between the new business advisers and the ongoing retainer advisers. Advisers for each division were recruited on “type” with “hunters” hired for the new business area and “shepherds” hired for the retainer area.

At the time the business was very focused on generating profitable ongoing fees from retainer clients almost to the point that the new business area was considered by some to be a strategic loss leader designed to source prospects and then convert them into retainer clients.

The advisers from both areas were trained in Myers Briggs personality profiling techniques in order to make them aware of their own personality traits which in turn helped to equip them to identify and accommodate the traits of their prospects and clients.

During the course of the plan presentation meeting, there would be a knock on the door of the client meeting room and the retainer adviser assigned to the client would walk into the room.  The new business adviser would introduce them as their potential ongoing adviser should they decide to become a retainer client.

This process was very carefully scripted and rehearsed to ensure that client’s understood that rather than loosing their principal planner, they were gaining another adviser who was across their file.

Using this process, the new business advisers had a success rate of over 85% in converting prospects to clients and ultimately a 90% success rate in converting these clients into the retainer service.

Despite these numbers however, the business was severely challenged by a lack of leverage or productivity once the client went into the retainer service.

In short, a retainer service team which consisted of a principal adviser, a paraplanner and senior support person could not service more than 60 client relationships without client satisfaction levels dropping…yes we were doing ongoing satisfaction surveys back in the late 90s.

Every time the 60 client ceiling limit was reached, a new team was recruited along with an additional 36 square metres of space, desks, computers etc.

In other words we had a stepped cost curve chasing our revenue curve and from a business perspective this was simply unsustainable.

The retainer service offer consisted of 4 meetings a year with their ongoing adviser one of which was the client’s AGM while the other 3 meetings were investment reviews.

In our experience, once the client had gone through two meeting cycles (24 months) most of them felt sufficiently well informed and confident in the service to voluntarily drop the three review meetings a year and simply attend their AGM.  When this happened, the productivity and profitability from the client would improve dramatically.

So, when I took over as the manager of the retainer area, my brief was simple:

  • Find out why the servicing ceiling was stuck at 60 clients relationships
  • Find a way to raise this ceiling
  • Find a way to reduce the time taken for the clients confidence to reach the point where they voluntarily reduced their servicing requirements
  • Maintain or improve client satisfaction along the way.

Now before you all start saying to yourself “…and for his next trick”… read on.

The problem
I started my investigation by firstly interviewing all the principal advisers in the retainer division to gain an understanding of the existing work flows and to see if there were any obvious road blocks that we could remove quickly.

During these interviews, however many of the retainer advisers levelled some very pointed criticism at specific advisers in the new business area claiming that they were handing over problem clients from the outset. These clients were continually unsettled about investment performance and a month would rarely go by without the business receiving an irate letter from a client asking why their investment fund had underperformed the “XYZ” fund by 30bps in the previous month.

“Red herring” questions from poorly inducted clients that would take two people in the asset management division a week to prepare and send a written response to. These clients ate the resources of the business like there was no tomorrow destroying leverage and profits along the way.

As cranky as the retainer advisers were with the problem advisers who sent them clients who were servicing “nightmares”, the retainer advisers were just as complimentary about some named advisers in the new business area who sent them clients who were servicing “saints”.

So with a growing suspicion that the leverage problems in the retainer service were originating in the new business area, I immediately turned my attention to those advisers to ask them what they were saying to their clients.

As you would expect, the advisers sending clients who were servicing were servicing saints were telling their clients all the real/good stories such as cash flow management, diversification, time not timing, volatility and so on.

By contrast, the advisers who were responsible for sending the nightmares to the retainer area were “selling” market timing, stock/fund picking and investment tricks. We even had one adviser who would promise their client that we would call them before markets crashed and we would call them just before they bounced back!

From these answers it became immediately clear to me was that there was a direct commercial link between what the advisers was saying to their clients during their early meetings with them and whether or not that client retainer relationship would flourish or fail overtime.

In fact it was the error, omission and variation that existed in the way the new business planners set client expectations upfront about what the business could do for them and how it would add value that was destroying leverage in the ongoing servicing area which in turn had imposed the 60 client ceiling.

So the challenge became how could we get all the new business advisers to consistently tell the same story that the “good” advisers were telling their clients?

The solutions
In the first instance the answer to this question was that we couldn’t. Those advisers who were selling the investment guru VP were senior advisers who were rusted on to the business and despite helping them to re-write their “scripts” and providing them with hours of training and mentoring the variations persisted.

It wasn’t until we decided to alter their remuneration packages and provide them with some client facing software that we started to get some consistency.

With regard to their remuneration packages, up until this point the new business advisers were rewarded entirely on the volume of new business revenues that they generated. They had no incentive to either sell the retainer services or to care about how the client’s expectations were being set when they did so.

In order to improve these outcomes we decided to re-apportion a significant part of their bonuses based on the number of clients referred to the retainer area. We also introduced a number of qualitative KPIs the most important one of which was the time it took for their clients to voluntarily reduce the number of meetings per year. This KPI had clear benefits for the business and it put pressure on the new business advisers to spend time with their clients educating them.

With regard to the client facing software, what started as a massive cash flow projection spreadsheet turned into the Lifetime Model which incorporated much of the approach and language I use today with my clients as we go thought a Goals Based Planning process.

With the GBP software being used with each and every client, we had managed to get the new business advisers to systematically set and manage client expectations the same way every time…a little like industrial design meets financial planning.

Before we knew it , we had created an absolute turn key solution for the business.
The results
Over the following two years the 60 client ceiling had increased to 120 for the same level of resource i.e. one retainer team.  Two years after I left IPAC I was told that this number had doubled again to 240.

In addition, the time it took for the client to voluntarily elect to attend just one meeting a year reduced from 24 months to 13 months.

While by any definition, these results they were staggering, what I learned next was simply breathtaking.

At one point, the IPAC directors wanted to produce a client video of the way we were setting and managed clients expectations around a goals based process and the Lifetime Model.

Part of the video production involved interviewing several existing clients in their homes and asking them what they really liked about the retainer service. While I had written the questions down for the director I wasn’t allowed in the room when they were being asked.

Of the many answers we received, the response from one particular retired couple in their 70s I will never forget.

When they asked Ray what he liked about the service he said he loved the portfolio valuation and cash flow reports that he received saying…“I can cross every “t” and dot every “I” and that makes me feel like I’m in control.”

While this was a typical response from a control freak, Margaret’s response was a revelation.

She said…“All I know is, if anything happens to Ray, things will continue on as they have in the past.”

In other words, when it came to their life savings, she didn’t care whether or not her husband of 40 years was alive or dead!…she had placed all her faith in the PROCESS she had gone through and not in her life partner or the advisers that she and Ray had met along the way.

What this response meant to me was that as far as Margaret was concerned, we had somehow diminished the relative importance that she had placed on an individual to deliver the service in favour of the process being delivered by the business.

I’ll leave you to contemplate just how earth shattering this shift was in the mind of the client and what it could mean for your business.

In the meantime keep an eye out for my next article entitled…“The Client Experience IS THE PRODUCT”

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