What is a cynic? A man who knows the price of everything and the value of nothing. —Oscar Wilde
How do you balance the cost of the services to be delivered in support of client retention and loyalty with the value of the client?
Many FAs feel they are too busy keeping their clients happy and managing problems to grow their businesses. That could be true or untrue but for the most part, advisors have not had a way to “know” where they were spending their time and whether that time was being appropriately invested in the “right” clients. Instead of advisors guessing where bottlenecks to growth are, this chapter proposes a methodology for estimating the time and cost of delivering services to client tiers. The process can determine what is restricting growth. We will describe an approach to calculating advisor contact workload so advisors can then determine how to fix it.
Advisory practices have two ways to grow their businesses: Grow existing relationships and acquire new relationships. A desire to grow the business makes it an imperative for advisors to have the time to focus on both of these activities.
We have discussed the services and values advisors can deliver to retain and grow their books. We have detailed the Client Service Matrix and discussed how to develop your Client Service Model or Promise by tier. The question remains, “Do you have the time to both grow the business and effectively service your existing book?”
Harvey Mackay said, “Time is free, but it’s priceless. You can’t own it, but you can use it. You can’t keep it, but you can spend it. Once you’ve lost it you can never get it back.”
The reality is there is really no way to “manage” time. An hour takes an hour, a minute takes a minute, and no matter what you do all of us have exactly the same 1,440 minutes a day to spend any way we like, but we can spend each minute only once. There is no managing this time. It takes exactly as long as it takes, never longer, never shorter. No matter what techniques or tools you use, that never changes. Since we all get the same amount of time, and it’s a fixed amount, all we can do is know what we spend it on and possibly spend it, or invest it, differently than how we do today.
We need to manage ourselves and how we use that fixed amount of time. How can you best allocate those 1,440 minutes to activities in a way that effectively serves your wants, needs, and goals and meets the needs and wants of your clients? As suggested, time management is a misnomer; the real question is: How should we allocate time? From a business perspective for FAs, the how is a function of your business goals and priorities, and that’s before taking into account your life’s realities, like kids getting sick and needing to be taken home from school, or you getting sick and needing to eat and sleep, and maybe even taking a vacation.
Michael Kitces says, “The reality is that every financial advisor eventually hits some personal productivity wall—the point at which there just aren’t any hours left in the day to serve more clients, even with the assistance of technology and a team of support.”1 While this is true, FAs need to be able to look ahead and see where that wall is before they hit it and plan what to do about it in advance.
Some advisors view their client or prospect contact work in terms of making some arbitrary number of calls per day or week, among a host of other important business actions they need to address. To add certainty to their workload FAs need to and can calculate their workload based on the facts of their books and their business goals. At a high level, FAs have the following key activities that need to be addressed on a regular basis:
• Client and Book Asset and Portfolio Management
• Client Service/Relationship Management (including client planning and review meetings and contacts, among the host of other services and deliverables outlined in the Client Service Matrix)
• Marketing/Business Development (in a number of ways discussed in Chapter 9)
• Team Management
• Business Planning and Tracking
There are other tasks that need attention, but let’s assume they are mostly handled by a client associate/sales assistant and perhaps a junior advisor. Each of the above-listed FA tasks also has subtasks that need to be addressed, but that’s a separate discussion.
One of our first tasks is to determine how much time we have to spend with our existing book on our retention, loyalty, advocacy strategy. Part of this strategy is to decide how many clients we have in each tier of our book—our segments—based on the criteria you have chosen to use to rate those clients (as discussed in Chapter 2). In our example in this chapter, another hypothetical book of business, we started with four segments: A, B, C, and D. After more analysis, we divided the C segment into two groups because our analysis showed that C clients with less than $1,000 in revenue were providing an average of only 30 basis points (BPS) while C clients with over $1,000 in revenue were providing an average of 121 BPS. A conclusion we came to is that we should not service these two tiers the same because they are not the same in their value or profitability to our practice. Instead, we divided this group into two tiers—tier C1 and tier C2.
Figure 4-1 | Hypothetical book of business.
Here’s our hypothetical book in Figure 4-1. This is a good book of business, though it has too many clients and too many “low end” clients.
For this book we decided on the contact plan shown in Figure 4-2 in order to support retention, loyalty, and advocacy especially from the clients we want to replicate. We have discussed our service and contact plans with our A, B, and C1 clients to get their agreement that these plans will serve their wants and needs. (See Chapter 3.) As stated, this sets expectations for the client and the financial advisor.
Figure 4-2 | Contact plan for our hypothetical book of business.
Using the spreadsheet shown in Figure 4-3, we can calculate the number of meetings and calls this FA would have to make to execute this contact strategy. This FA would have to conduct approximately three face-to-face planning and portfolio review meetings a week (2.6), four telephone planning and/or portfolio review meetings a week (4.2), and 11 or 12 check-in calls a week.
Figure 4-3 | Meeting and call volumes for our hypothetical book of business.
We then estimate how long each meeting type and call takes. We have assumed average meetings and calls take the following amount of time:
• 2.5 hours for a face-to-face planning and portfolio review meeting including preparation and review after the client has left the office, which includes a follow-up letter or email to the client and recording notes into your CRM system. This breaks out as:
• 1 hour of meeting preparation
• 1 hour for the meeting
• 0.5 hours for review after the meeting
• 1.5 hours for a telephone planning and/or portfolio review meeting including preparation and review after the client call ends. This breaks out as:
• 0.5 hours of preparation
• 0.75 hours for the meeting
• 0.25 hours for review after the meeting
• 15 minutes for a check-in call
Figure 4-4 | Meeting and call time commitments for our hypothetical book of business.
It’s all in the spreadsheet! As is shown in Figure 4-4, the process as described defines the number of meetings the FA is committed to and the FA’s time commitments. It also shows how the time commitment the FA is making relates to the revenues the clients provide. We know in many books that A clients tend to subsidize lower-revenue-producing clients. This is a way of showing it clearly and showing the gap so that we can take adjusting actions.
This plan requires approximately 15 hours a week (14.83) of the FA’s time for client contacts. This may seem like an appropriate amount of time to spend on client contact. However, there are other necessary service commitments including the time it takes to prepare financial plans, liability planning and management, estate and insurance analysis and planning, wealth transfer planning, education planning, client CPA contact, and lunch and/or dinner meetings. This is only one step in the time allocation process. The design of the Client Service Matrix and Client Service Promise, along with the approach given here, provides the tools for that analysis.
There is a critical point to highlight: Looking at the two columns on the right in Figure 4-4, Percent of Total Contact Time and Percent of Revenue, you see that while A clients contribute almost 57 percent of this FA’s revenue, the advisor is spending only about 39 percent of his/her contact time on these clients. In the case of the B, C1, and especially C2 clients, this FA is overspending his/her contact time when compared to their respective revenue contributions.
The FA can rebalance this distribution of time by either:
• Adding the time it takes to provide other services to A clients
• Reducing the time spent on lower revenue clients
• Increasing the revenue on current low revenue clients
• Reducing the number of current low revenue clients by shifting low revenue clients to other alternatives such as newer FAs, service centers, or “Pool FAs” (a group of younger in-branch advisors)
These are the realities of determining the profitability of your book. There are considerations other than profitability. That’s another, separate decision. Some FAs feel obliged to service low revenue clients because of their belief system, their commitment to long-term clients, or their commitment to the community. There are beliefs other than money. The point in this chapter is to provide a structured basis for decision-making based on the numbers, not on belief systems.
The next steps would be to determine how much time you spend on the other tasks in your business: client and book asset and portfolio management, other client service/relationship management services, marketing/business development, team management, tracking, and assumedly other activities like problem resolution. In addition, there are emails and inbound phone calls. Similar techniques can be applied to each of these other FA business activities. The point here is to organize and structure your business as best you can based on the realities of your current book of business, your team, an effective and efficient set of roles and responsibilities, your business plan, and the goals your plan includes.
With these steps completed, use a simple formula:
Number of Servicing Hours per Service Deliverable × Hourly Rate for Service Provider = Cost of Service (for that deliverable)
The sum of the costs for all Service Deliverables for a tier is the Total Cost of Service for that tier. Client costs are a function of their tier and can be increased or decreased by the advisor for special cases (e.g., if the client consumes more time than usual in review meetings, or consumes less time because they want only two reviews a year instead of four). In most cases we suggest using the standard cost for that tier.
The Total Cost of Service is not the same as Total Client Cost because there are other costs not related to direct service but associated with non-service activities like research, administrative, management, and marketing and sales. These latter activities are for the benefit of all clients or the practice itself. They can be allocated to clients as a factor determined by dividing Total Work Hours (e.g., 50 hours a week on average) by Total Servicing Hours (e.g., 25 a week on average) to account for the cost of non-servicing hours spent doing the rest of the FA’s or team’s work. In this example, Total Service Cost is about 50 percent of Total Client Cost, or Total Client Cost is two times Total Service Cost, so you can allocate all hours. It can be more complex than this analysis. That would likely require a consulting engagement funded for a firm-wide program using tools like activity-based costing. However, it’s not necessary to get more granular here since we are working with approximations and the relative costs of servicing by tier. The approach we present here will give an individual- or team-based practice guidance for determining general profitability by client. Comparing revenue by client with cost of servicing by tier will enable the financial advisor to estimate relative profitability so adjustments can be considered (e.g., reduce the number of meetings for a low profitability client). A more detailed analysis would not be efficient or effective for most practices.
You also need to develop a “Model Week” or “Model Calendar.” Model calendars and time blocking are a couple of the tools and techniques that can help you allocate your time and will be discussed in Chapter 7. The most important tool in your tool bag, however, is commitment and discipline. You need to develop your plans and follow through with them rigorously for them to be effective.
Our suggestion is also that you never overschedule your time because of the many things that can arise during your normal (usually hectic) weeks. You can pretty quickly see that the reason you may always be too busy is that you probably underestimate the time it takes to really do your job. There are solutions. The solutions are often not complex but they do require analysis and much thought and they sometimes cost money. It is likely that with a “full book” and a desire to grow your business a 40-hour week would be quite a luxury.
As time is one of your most valuable assets, you need to think through the “four steps to freedom”: eliminate, simplify, automate, and delegate. Once that is done, advisors need to deliver services using two key principles:
• Proactive preparation. We define this as having systematic processes, clarity in expectations, and defined roles for every team member. This principle will help your team manage issues dealing with effective use of your time in addition to loyalty.
• Alignment of your target clients and business and service model. If you go to a high-end retailer on a busy weekend with commissioned salespeople looking for buyers of larger-ticket items and you approach them looking to buy a pair of socks, they may see you as an ineffective use of time. If you go to the best restaurant in town for a cup of coffee or perhaps to share a dessert, the wait person may also see this as an ineffective use of time. In these cases, from the perspective of the service providers, they are being inefficiently and ineffectively used. These examples, and the example of the book of business in this chapter, show that it’s challenging to build an organization that efficiently and effectively services a wide range of clientele, whether in terms of wealth management or clothing or food services. While there will be exceptions, you need to align your services and business model with your target clients.
Over the past several decades what we have witnessed has led us to several conclusions:
• High-performing advisors have systematic plans to manage their processes and make effective and efficient use of their time.
• High performers have set very clear expectations with their clients as to what each client can expect from the relationship.
• High-performing teams have well-defined roles and responsibilities for each team member.
If these key elements are in place, it makes it easier for high performers to make decisions about the services that result in strong relationships and loyalty. In fact, with effectively planned service models, the number and types of decisions are reduced because decisions are part of the process; they are predetermined courses of actions. Whether a team is dealing with the cost of loyalty or other issues, high-performing teams are excellent at “proactive preparation” and having a targeted set of clients.
• In addition to understanding the value you deliver to clients, you need to understand the costs of delivering that value. Each client loyalty process can bring value to the client. It also generates costs to you, mostly in terms of your time and that of your team. You need to be in balance for an efficient and effective financial advisory practice.
• Time is one of your most important assets and the one that is specifically limited. It’s your most precious raw material because it’s one thing that we can never get more of.
• Value is determined by the client and cost by you. Don’t deliver items to the client they don’t value because they almost always have a cost. Remember that your service model for a given tier may call for a certain deliverable (e.g., a financial plan). If a client doesn’t value a financial plan, you either need to convince them of their need for that plan or it may not be of value to deliver it. Find that out in conversation by asking.
• This chapter asks you to specifically decide how much time you should spend with each client, at least by tier, and how much you can afford to spend with each client. You are running a business, and there are practical aspects of that responsibility to your clients, your family, yourself, and your firm.
• You can choose to be altruistic and do some or even all your work at a loss, but that needs to be a conscious, fact-based decision.
• Your other important asset is your knowledge as a financial advisor, which should always grow over time.
• Costs are more effectively and efficiently managed in an environment that is process-based, establishes clear expectations for the client and team, has defined team member roles, and works with a definitive set of targeted clients.