At PortfolioMetrix, we recently hosted a thought-provoking webinar that brought together over 70 of our adviser partners from South Africa and Ireland. The focus of our discussion revolved around a crucial topic in the advisory world: managing a 'tail' of smaller clients.
Kathryn van Dongen kicked off the discussion by posing questions to two of our South African adviser partners. Participants were encouraged to share their thoughts. It led to a lively and valuable discussion that shed light on the definition of a 'tail' of small clients, the challenges they present, and the strategies to serve them adequately and profitably.
In this blog post, we delve into the key insights shared during the webinar, exploring the qualitative and quantitative aspects of defining a 'tail,' the reasons why serving smaller clients can pose problems, effective ways to service them profitably, and the delicate process of offboarding clients who no longer align with your business proposition. Below we navigate the complexities of this important aspect of financial advisory services and summarise the main points shared amongst the panellists and attendees.
How do you define a Tail of ‘small’ clients?
- It is both Qualitative and Quantitative
- Think about the Revenue Per Annum vs work required i.e. are they profitable?
- There can be a Commercial rationale for smaller clients
- Are they good referrers?
- Are they connections of large clients e.g. children etc.
- Clients who repeatedly do not act on your advice, regardless of profitability, are part of your tail – they are not deriving value from your service
Why is it a problem to have smaller clients if they are already onboarded?
- Vision and Values are important – what are they for your business and does each client fit with this?
- According to the theory of Dunbar’s number it holds that we can only really maintain about 150 personal connections at once before you start to forget who people are (this includes personal relationships) so you need to manage your client numbers – there can only be so many seats on the bus, and every client must justify their place.
- If not profitable, then other clients are effectively paying for these clients to be serviced.
- Every existing client is a responsibility for the firm, there is ongoing suitabilitya obligations and therefore they are a liability risk.
- It is not fair to not service a small client – their money, regardless of the amount relative to other clients, is important to them. Therefore, it is better for them to find someone who will service them. It is a big problem though and leads to an advice gap.
Have you found ways to service a tail profitably?
- Robo advice does not seem to be successful in replacing a human adviser client interaction
- You can move to a reactive model for smaller clients
- Bear in mind, smaller clients are usually less work than larger clients
- The value of smaller clients can be as a training ground for new advisers to build up experience and ultimately assist in dealing with larger clients
How do you offboard a client?
- No two ways about it, it can be difficult – especially if it is a long-standing relationship.
- Explain that your business is looking to offer a high value, high service offering to clients and therefore there needs to be a minimum fee for this – allow the client to opt into the minimum fee if they would like
- A client may not have large assets with you but may be a successful executive with a large company pension scheme and they are able to afford the minimum fee and want your service and guidance
- Clients appreciate honesty
- If as part of offboarding them, you are removing your fee you are reducing their costs so they may be happy with that
- Proceed with caution if operating in smaller communities as people talk and you don’t want to get a reputation for being ‘picky’
- Explain to the client that if their needs change you are still here and can reopen the relationship – particularly if it is an unengaged client