The popular ways of dealing with less profitable C and D clients are to bundle them up and sell them to someone else or to raise your annual fees. But in the future, advisers may increasingly use technological solutions to boost their efficiencies and reform the price of advice.

That’s the view of Paul Harding-Davis, general manager of Brisbane-based AdviceIQ, who is also an advocate for superannuation funds providing limited advice to Australians with lower balances to invest.

He says many advisers have over the years accumulated, say, 200, 300 or 400 clients. “That’s very difficult to service well and meet all the current requirements, so they need to either find a way to increase resources or sell the C and D clients.”

He believes firms need to have a minimum annual fee that ensures that ensures they can run their business on a healthy margin. If clients aren’t willing to pay it, he says you have a discussion with them and part ways (if there’s no strategic long-term reason to keep them).

Harding-Davis says practices may find some technological solutions that will dramatically increase their efficiencies and ability to service less profitable clients in the future. But he says: “Realistically, there’s not a lot of that around yet. In this country, some people are getting closer to achieving breakthroughs. However, we are yet to see it really transforming the price of advice.”

Jenny Brown, CEO and founder of Melbourne-based JBS Financial Strategists, says generally, her company’s C and D category of clients are those who are not engaged, are low fee-paying or aren’t prepared to pay their fees.

Questions Brown’s practice will ask to evaluate a client include whether they refer new clients to the practice, are they great to work with or is the practice always chasing them to return paperwork and the like.

“Often a change of adviser or practice can turn a C or D client into an A or B client. Every adviser or practice has a different definition of what the category is,” she says.

Brown says potential clients referred to her business are asked a lot of questions in the initial conversation. “We also offer an initial meeting via zoom/teams and spend 60-90 minutes with them ensuring they are the right type of client for us at that point,” she says.

“We ensure they have sufficient wealth or cashflow to be an ideal client within a couple of years and drill down into what we provide in terms of service, how we work and the fees we charge.

“We do all this upfront so that there are no surprises. Sometimes we make a call to take on a client who is not an ideal client, but with the view that it might be a slow burn, or they are part of a quality family group and we really do need to look after them.”

Meanwhile, Josh Dalton, a director of Dalton Financial Partners in Brisbane, says his firm doesn’t classify clients in into C and D categories.

“We just have a minimum annual fee of $6,000. This will pretty much tell us whether that client is going to be suitable for us,” he says.

This minimum fee, he says, ensures there’s enough margin in every client.

Dalton says his practice tackles the subject of less profitable clients in two ways. “If they’re not suitable long-term clients, we might still do work for them, but we might just do a 12-month engagement. We would just set them up and then let them manage it on their own if we feel that it will be petty simple.

“But sometimes we also end up accumulating a lot of insurance clients and generally there’s always a market for those. That’s what we are going through now. We’re offloading about 100 risk clients to a firm that wants them.

“It generally works out well for all parties. It obviously gives us a bit of a cash injection, but at the same time, there’s more opportunity for the other firm. Those clients will get better looked after when it comes to insurance reviews and there will be more specialist advice for those clients who need more insurance help rather than other investment advice.

“There are other firms that have much more efficient processes when it comes to insurance than we do. And some clients are better served through them.”

Dalton says being selective with clients doesn’t necessarily mean that you’re a snob. “

We’re pretty vocal with our clients that we’re not that great at dealing with Centrelink and the Age Pension,” he says.

“There are plenty of advisers who are awesome at that, but it’s not us, because we specialise in self-funded retirees. It’s about being clear about who you best serve.”

One comment on “Technology and a clear offer key to dealing with less profitable clients”

    Thanks Zilla, we must all talk more about the topic you raise. The new revolution taking place is that many planners are transitioning from a practice to a business by building their own Business System. One element of this is having a strict definition on who is an ideal client and we provide an Ideal Client Tool to those planners building their System. With the current laws on servicing clients, its hard not to offer comprehensive financial planning so it’s next to impossible for a single planner to have north of 200 clients. Jenny Brown says it all ” C and D category of clients are those who are not engaged, are low fee-paying or aren’t prepared to pay their fees.”. So with great respect a business should find a planner where these clients become A and Bs and move them on. Remember, BID says you must care for all clients, hence its hard for you to have Division 2 clients. Josh Dalton understands his metrics well, there has to be a minimum fee. He also respects that a planning practice starts out as an “all-rounder” but a planning business understands what it does well and what it doesn’t want to do. Build your Business System, create your efficiencies to save time, and then spend more time deepening client relationships. This is the brief of the business owner, and you will find A grade clients eventually, there are plenty out there.

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