Most advisors pride themselves on being sensitive to client needs and issues, and many firms strive to be professional fiduciaries by putting the needs of clients far ahead of what might be better for the firm.

Many of these advisors and firms think of themselves as “client centric.” You probably do, as well; in fact, you may be thinking, “We’re completely focused on our clients, so of course we must be client centric.”

Hold on a moment.

Recent research suggests true client centricity is not part of a mission statement, nor is it a higher level of service — nor a heightened sensitivity to client needs. In his book Customer Centricity, Wharton professor Peter Fader defines that term as a focused business strategy that aligns a company’s products and services with the needs of its most valuable customers.

I used to say to our staff: “The client is always right.” But a better way to put it is that the right clients are always right. And being truly client centric can improve the value of your organization.


There’s another misperception out there. You may think that companies like Walmart or Costco (known for low-price innovation), Apple (a standout in product innovation) or even Nordstrom and Starbucks (think customer service) are customer centric.

In truth, these companies are product centric; they don’t differentiate customers by the level of value they bring to their bottom line.

Why is that? Historically, firms selling telephones, clothing or big boxes of detergent have organized their operations with an extreme focus on selling their products at prices that yield the largest net profit. Development, production, distribution, marketing and compensation systems are all geared to optimize efficiency and generate the highest possible margin per product.

As a result, customer data is collected and analyzed to help figure out how to maintain or increase profit margins. The company might ask how it can make a different color, style, size or flavor that will sell more and create higher profit margins.

By contrast, client-centric firms include Harrah’s Hotels and Rolls-Royce, which build client equity by providing highly customized experiences. Similarly, Neiman Marcus offers specialized services, while EXOS health clubs deliver highly personalized programs. All these businesses are organized to find, develop and retain the highest-value clients.

In the financial planning industry, we like to think all clients generate some value; we tend to use the number of clients and total revenue when calculating firm valuation calculations. Financial advisory firm valuations consider EBITDA, growth potential and client demographics — which usually include client age distribution and some factor for retention.

But under Fader’s thinking, this generalized calculation is flawed — because it assumes each client is equally valuable.


In truth, clients are not homogeneous, and they differ in value to your firm. This is where the concept of client centricity comes in. If you don’t recognize the heterogeneity of your clients, you can’t make educated, client-centric decisions about your service and operations, nor maximize clients’ value to your firm.

Fader proposes a concept called “client lifetime value”: the present value of all future net cash flows from an individual client. To calculate it, you need data on each client’s annual revenue, plus the probabilities of revenue in successive years and the length of time the client is likely to remain with you. Total client equity is the sum of individual clients’ value.

Here’s another reason client heterogeneity is important. You might argue that the average retention of your clients is 97%. But of course, a professional statistician will tell you that’s impossible, as all your clients will eventually leave (when they pass away). Your clients’ length of time with your firm might be better reflected on the “Client Retention” chart below.

Yet this chart does not tell the whole story. Your client population is not homogeneous. What’s missing is how different segments behave. Some clients are retained only a few years, but a much larger segment of clients stay for a longer time. An example is shown in the “Which Clients Leave?” table below.

This differentiation is important in terms of the lifetime value of these clients to the firm. A conventional company valuation might use an average retention number to come up with an expected turnover rate. So, as an example, (0.06 x .70) + (0.35 x .20) + (0.65 x .09) + (0.95 x .01) = 0.18. By that reasoning, one would expect client turnover every 1/0.18 = 5.56 years.

But taking into account the behavior of individual clients — using the sample numbers at left — would lead to a different calculation: (16.7 years x 0.70) + (2.9 years x 0.20) + (1.5 years x 0.09) + (1 year x 0.01) = 12.4 years.

Clearly, having clients stay longer with your firm makes them more valuable — but without segmenting your clients correctly an independent valuation analysis may be substantially understating the worth of your client base and firm.


Gathering data is fundamental to working with a client. Many firms already have significant client information in their CRM systems. Yet I think few have created programs that focus on the most valuable clients — or even know which clients are more valuable. To work in a client-centric way, you must focus on the ways client information is organized and put to use.

Our firm developed a matrix that listed clients individually using data on AUM, number of referrals, percent of wallet share, longevity, ease of working with them, level of effort, center of influence impact and other measures we feel contribute to overall client value.

We called this total client value: We assigned a score for each category and summed the category scores by individual client.

Now our advisors use that customer data to focus marketing and relationship-building efforts on the firm’s most valuable clients. We also know more about those clients: which ones like to be highly informed via white papers and seminars, and which ones like to go out to dinner, play golf, sail or travel. Our advisors regularly join those clients for activities they like in order to build and nurture strong relationships.

At the company level, we know who our most valuable clients are. We’ve differentiated our service levels and marketing initiatives accordingly, spending more money, time and effort on our most valuable clients.

To be successful, being client centric is not about client service — it’s about identifying the right clients in the right way to generate the results you want.

All clients expect to be properly served, but not all clients expect — or deserve — the same levels of service. In his book, Fader warns readers: “Ignore [clients’] heterogeneous needs — and their heterogeneous value to your company — at your own risk.” 

Make sure your firm’s CRM data is helping you do your best work for your most valuable clients. 

Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and vice chairman of Savant Capital Management, based in Rockford, Ill.

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access