Despite the fact that there are not enough advisers left to serve the clients who need them, we know there are some advisers who find themselves in a situation where they’ve been too busy serving their existing clients to worry about finding new ones. They have now chosen to switch off their annual retainer to some lower value clients who no longer need them every year (and wouldn’t get value for their minimum fee), but they are faced with the challenge of how to replace (or ideally grow) the revenue hole that will be left behind.
We frequently help advisers map their project plan to replace those ‘lost clients’. It happens in every mature business. Sooner or later, they find that some of their longer-term clients are better served by switching off their retainer and accessing their adviser on an as-needs/pay-as-you-go basis. Sometimes, this is a regular activity that occurs every few years; for others, it’s an activity that happens when a Principal finally arrives at the realisation that they’re working too hard for not enough profit. (We’ve seen advisers working weekends and evenings, to service clients who don’t pay them enough and would be mortified to discover they’re causing their adviser financial and emotional stress!)
On an intellectual level, most advisers know that exiting these clients is the right thing to do, rather than go broke, charge other clients too much to subsidise them or charge them too much for a service they no longer actually need. And yet, It’s often an emotional time, with mixed feelings of sadness to no longer see long-term clients and a bit of fear about how to replace that revenue — especially if there are a lot of small amounts adding up to a significant sum. (Like one of our firms, who discovered they had $190,000 in revenue coming from clients paying $1,200 or less).
It can be daunting to take that leap of faith but usually when we map out the numbers, firms gain more capacity for their advisers, and depending on what their legacy fees were, they can often replace the revenue of three to four clients with one new client who will receive tremendous value for the fee they pay. Over time, a firm can rebuild its client base for better profitability and client advocacy, as they ensure that every client engagement is one that provides significant value for both parties.
If you haven’t yet finished this exercise in your firm, here are a few thoughts that might help you.
- If you have any thoughts that you’re ‘abandoning’ long-term clients, flip your thinking — you’re actually doing the right thing by them. They’ll most likely prefer that you don’t charge them for an ongoing service if they don’t really need it. Sure, it’s nice to chat with you and catch up regularly, but if the value of your technical or planning advice is not commensurate with your minimum fee, you’re doing the right thing by exiting them.
- When you communicate with clients, make sure you give them options for how they can access support when they need it in future. This may be via the helpdesk at the provider their pension fund is invested with, or Centrelink, or another adviser more suited to their service OR your team — being clear about the ad hoc fees they’ll be charged at the time.
- Ensure you adjust their affairs so that they can self-manage them. Do they know their login details to portals? Are their investments auto-rebalanced, etc? Even if you need to charge a fee to document and implement this advice, most clients will see value in paying that fee once, to save the ongoing fees you will switch off as a result.
- Be sure to communicate the situation with your staff, so they'll understand why you’re making the change, and how and when the client is to be served in future. Help them practice how to handle requests from clients who may take a little while to break habits of requesting assistance for no additional fee.
- Create a ‘menu’ of your ad hoc services so that it’s a straightforward process for clients to engage you on an as-needs basis. You may or may not elect to keep this option only for your previous clients. (some advisers consciously choose not to offer transactional services to new clients — your choice!)
- If you don’t already have it, you might find it worthwhile to establish direct debit or a merchant facility so that you can charge transactional fees easily.
- Keep these clients on your email newsletter list, so you stay in touch with them and they continue to receive your articles of interest. They’ll feel like they’re still connected with you, and be more likely to reach out when they have a need that they can pay for at the time.
- Engage in an intergenerational advice strategy, where you serve the adult children of your ageing clients, and you will likely be able to serve the whole family on a profitable basis. Older parents will still benefit from your long-term knowledge and trust and still stay in touch with you, albeit if they don’t personally receive an annual structured review.
- It’s likely that you’ll keep a handful of pro bono clients who really do still need you to help them handle their affairs. Rather than switching the fee off entirely, many advisers have found that their clients prefer to keep some dignity by paying something, and the adviser receives it regardless of what it costs to deliver the service. Be mindful of your compliance obligations — you’ll still need to deliver what you’ve promised, regardless of how low the fee is.
- You might find that some of these clients will benefit from an administration-only style of service, which can be charged on an as-needs basis, or a small retainer. (Make sure you’re very clear that the fee covers administration only — not advice)
- Be sure to plan the exit of clients in a systematic way. Rather than ‘letting go’ of all these clients at once, plan the timing so that you have time to communicate effectively, and replace the lost revenue with new clients. Even though it will take you two to four meetings to bring on the next client to replace them, this client will pay your engagement fee to cover that work — and next year, their ongoing fee will likely replace that of three to four clients that you exited, with only the workload for one. This is why it can take a few years to reap the benefit of streamlining your client base, but it’s an investment well made! Running your numbers and planning the timing will also allay any fears you have of losing revenue.
- It’s a good idea to keep track of how often your clients reach out in future to access ad hoc services. Many of our advisers have been surprised that they’ve had very little uptake, confirming their initial decision that the clients didn’t need their services anymore.
Now that you’ve got your head around what you’re letting go, here are some tips on what you’re moving towards. Be sure to plan for how you’ll attract new clients to replace those you’re exiting.
- Stay selective about the type of clients you’re bringing in — don’t recreate the same problem by using precious resources to serve a client who doesn’t meet your definition of your targeted clientele.
- Determine a plan for how you will attract the new clients you seek. The best source of great new clients generally is your existing client base. You can get centres of influence, you can have accounting relationships, and you can do digital marketing, but the quickest and the often best way is to have your current advocates — your clients — help you find new clients that look just like them.
- Map your capacity, so that you can select marketing activities that will likely attract a flow of opportunities that will match your capacity to turn around the work. A great marketing idea can damage your business if you can’t serve the quantity of clients you attract and therefore deliver a sub-optimal experience!
Redesigning your client base is an exercise that if done well, can help you achieve a tremendous uplift in enjoyment and financial results that you get from your business, and for your clients.
Related: The One Thing That Will Guarantee a Successful Future in Advice