How can you turn the tables and get these smaller, inactive clients to potentially become your best clients? Most advisors are aware of the 80/20 rule; 80% of your income comes from 20% of your clients. Modifying this principle a bit, I often find that 80% of revenue comes from 20% to 40% of your clients.
This creates a dilemma. Advisors love to provide advice. Inactive clients often pull at your heartstrings, even though logic dictates that you should focus on your larger accounts. So what choices do you have?
First, you can remove the smaller clients from your practice, either by turning them over to your home office or transferring or selling them to another advisor. The pros: It provides a quick, turnkey way for you to work exclusively with your high-net-worth clients. The cons: While easy to do on paper, severing relationships is sometimes emotionally painful.
Second, you can give the smaller accounts to your junior associate. The pros: You can still maintain a relationship. The cons: Junior advisors will have a difficult time making these smaller accounts profitable if the senior advisor couldn't.
Third, you can implement a client reactivation campaign. The pros: With the right approach, you may uncover inactive clients who will transfer more assets and become active again. The cons: It takes time and effort to implement a reactivation campaign.
Sometimes it may be easier to generate new business from your current clients than to find new clients. Fortunately, you don't have to choose between the two. You can do both by answering these questions. First, how can you segment your client base? Second, how can you reactivate inactive clients and finally, how can you provide more comprehensive service to all of your active clients?
Segmenting Your Book
Let's begin by addressing how to segment your book of business. Most broker-dealers give advisors certain back-office capabilities to help rank your client base. (If your back-office lacks these capabilities, you will need to do it manually on paper or in Excel.)
- Step 1: Create a list of all your clients ranked by assets. The client with the most assets is at the top, the one with the least assets at the bottom.
- Step 2: Divide the list into 10 equal groups.
- Step 3: Calculate the average account size of each group (total assets per group divided by number of clients in the group).
- Step 4: Put your top 20% of clients in group A and your middle 40% of clients in group B.
- Step 5: Divide the remaining 40% of clients into two groups. Group C is those clients who have a close relationship with your A or B clients. Group D is the remaining clients who don't have much of a relationship with anyone other than you.
Now, you may wish to edit your segmented client base. For example, if you know one of your clients has sizable assets that may be available for transfer, you may wish to move that client into your A list. Or, if you have a client in your A or B list who really undervalues your services, you may wish to remove them completely. Of course, all clients you keep need to be serviced properly, or you run the risk of having them file a complaint. (But creating a service model for each segment is a topic for another article.) Next, how do you implement your client reactivation campaign?
Review your C and D clients and ask yourself how you acquired them. Were they assigned to you? Did they come over when you purchased a practice? Will you repeat this process to acquire more clients in the future? If so, why? If not, what will you do differently?
Now, determine who from the C and D list will be included in your reactivation campaign. Create a new spreadsheet listing them. Then prepare the following letter:
Please contact us at (your phone number) immediately regarding your account.
When the clients call, either you or your assistant will schedule a review meeting. I don't recommend conducting the meetings by phone unless absolutely necessary. If the clients don't respond to the letter, call them within seven to 10 days to schedule a meeting. If the clients don't respond to your voicemail, send another letter and repeat the process until you get them on the phone and schedule an appointment. If the clients refuse to meet with you, remind them you need to know your clients and this is how you do it.