An ideal financial planning client has between $2 million and $8 million to invest, is happy to pay substantial annual fees, takes advice, turns up to annual reviews and is a pleasure to deal with, according to Back Office Hero principal Mark Lewin.
These clients should produce an average profit margin each of $7000 based on them paying fees of between $8000 and $35,000 a year and will be likely to happily refer new clients to the firm, he tells Professional Planner.
The former Markson Financial Planning owner arrived at these profitable parameters over 25 years, selling “B and C-grade clients” in his practice to “someone who could love them more”.
He recently sold his 122-client business to the highest bidder based on these disciplined parameters and an efficient back office and now consults to other planners to improve the profitability of their businesses, he says.
Lewin said planners should “be turning away 60 per cent” of potential clients because they were unlikely to meet the above criteria.
“I sacked my brother as a client because he didn’t come to an annual review,’’ Lewin says.
“A businessman has to run that business profitably, running a tight ship and have rules. [Not making an appointment] was a waste of time for back-office staff.’’
Lewin says if a client relationship sours causing staff to leave, it was okay to sack the client
“It’s in the best interest of our clients that we do have happy staff and we all have time to get to know our existing clients,’’ he says.
Perth-based Acumen Wealth Management senior adviser Cameron McLean says his firm did turn away about one in five potential clients because the fees outweighed the benefits of the financial advice for them.
“We have to make sure that the client can afford it and that we have to show that they are going to get value for money,’’ he says.
A client with about $100,000 in superannuation, $200,000 in home equity and at least $100,000 in annual income was likely to benefit from advice and be a profitable client, he adds.
Rising business and compliance costs prompted Acumen to remove a flat $3000 a year fee or one per cent of their balance a few years ago which had “taken a lot (of clients) off the books” as a result.
“We dropped the volume of clients as it was more profitable for us to have fewer clients and increase the cost but would provide more focus,’’ he says.
The three-adviser firm with about five administrative staff, says about 120 to 150 clients per adviser was ideal, charging between $4000 and $4500 annually.
“We’re in a position where there’s less need to haggle,’’ he says.
He expected the “sweet spot” of profitability for financial planners was using technology to their advantage and finding the right balance of administration support for fees charged.
JBS Financial Strategists chief executive officer Jenny Brown says an ideal client was nice to deal with, a pre-retiree who pays about $12,000 in annual fees, has complex financial requirements and about $2 million to invest.
The firm have a multigenerational focus, perhaps helping clients’ parents with aged care issues as well as working with their children.
“We offer advice at no cost to clients’ kids who are younger than 35 which is a loss leader,’’ she says.
“As they get into their 40s amassing wealth… in the early years we don’t make much money but we look at them in totality.”
Crucial to the business was the Xplan software tool which analysed the business to maximise profitability, she adds.
Do you get the feeling that for Mark Lewin, it’s much more about him than the clients? You could be forgiven for thinking he was talking about grading cattle.
“Selling” B & C grade clients, “Turning away 60% of potential clients”
“Sack the client”. Such miserable language, completely devoid of all humanity. I bet the people you turn away Mark, feel really good about the experience! Still, no money lost , so all good your end.
Even “sacking his brother” as he missed an appointment. Boy, must be fun at the Christmas get together with the Lewin family!
Fortunately, not all planners see the pure mark of success as a measurement in dollar bills.
Sadly our industry has failed the Australian public over the last 30 years, so that advice is now so expensive, the likes of Mark Lewin are reported on as a measure of success. For me, it’s the measure of failure as only a tiny portion of the population could afford the fees he prescribes.
The truth is Mark, the amount of “someone’s who could love your B & C grade clients more” ( awful condescending language), don’t exist anymore. Adviser numbers have fallen, haven’t you heard?
Imagine you are sick Mark, and you visit a Doctor and they say “Sorry Mark, I know you’re sick, but you’re only at the “C” grade of sickness” “I only consult to those with a “A” grade sickness” “Come back and see me when you’re really sick, and bring your cheque book with you, no Medicare or PBS hear I’m afraid!” “Oh nad good luck finding someone who will love you more!”
When I first ventured out into the self-employed adviser world almost 20 years ago, I was fortunate to share an office space for a period of time with Mark Lewin. I bought a few of his B & C clients to start my business, and witnessed first hand how a financial planning business should be run. That early mentoring and business advice was a huge benefit for me.
Those of us with significant experience in business development and operations management understand the concept of ‘customer lifecycle management’ and ‘customer lifetime value’.
Advice is no different, in that everyone transitions life stages with different needs and demands, requiring the practice to consider the return on value for the client from the practice, and the return on equity from the client to the practice, creating a mutually sustainable business service for both client and practice.
Whilst not advocating loss-leading for the younger generation of an existing client in a familial relationship, a SLO (self liquidating offer) in which matches the cost of advice from inception to delivery against the revenue generated to match a zero sum outcome, gives the client a taste of investing in their own advice, and the practice bankable credibility they can convert to an Advice Value Proposition when that same client transitions to a new life stage with a greater equity level seeking investment and complexity.
The ultimate challenge is in recognise the ‘B’ value clients who have the potential to transition to an ‘A’ value tier, through the use of simple operational approaches and business development models suitable for both client and adviser practices.