Schwab Advisor Services figures that advisory groups classified in its Best-Managed Firms must be doing something right. These are the top 20% of its advisor clients in terms of productivity, profitability and revenue growth.
So the San Francisco-based firm this week launched “Managing Client Profitability," a new consultative program designed to help advisors shape and manage their businesses with profitability in mind.
Client segmentation drives several of the program’s components, although the broader purpose is certainly not to shuttle lower net worth clients off to a call center.
In a financial advisory firm’s normal life cycle, the business gets off the ground by attracting clients, sometimes by being less discriminating about which clients get served, Scott Slater, Schwab Advisor Services’ managing director of business consulting said in a telephone interview.
But expansion puts strains on a firm’s capacity to keep delivering quality services to clients.
"The issue advisors bring up most is about growth; how to build a business more quickly and be better at it,” Slater said.
One of the insights Schwab gained from looking at is Best-Managed Firms was that they had to allocate time and resources appropriately to the right mix of clients.
Schwab developed the Client Profitability Modeling Tool, a proprietary system that helps advisors determine each client’s profitability and maps out the firm’s economics and revenue mix. It began using the tool in advisor workshops in late 2010.
The program is much more of a package deal, Slater said.
It includes an introductory Webcast and in-person workshops. Schwab relationship managers, along with a consultant, with individually with firms to pinpoint which clients drive profitability, how to allocate resources to each client group, and how to get the most of Schwab’s consulting services.
For instance, a firm might decide that the more profitable clients with complex financial needs should have more face-to-face meetings, maybe quarterly. One of those meetings could involve helping a client map out his or her philanthropic objectives. Less profitable clients could receive attentive, à la carte services, Slater said.
Managing Client Profitability gets to a core challenge at advisory firms, Slater said. “They all run into a capacity challenge,” he said.
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