A numbers game

Another week goes by and you haven’t drummed up new client leads. You’re satisfied with the number of clients you have, but managing your business is getting stressful. The most worrisome thing? Despite being busy, you’re not hitting your revenue targets. There’s a question nagging in your mind: How will I find the time to take on more clients to reach my goals?

Your first step is to stop asking that question. Instead, you should be asking what size your practice has to be to reach your targets.

“Many advisors don’t recognize they have a maximum capacity,” says Julie Littlechild, president and founder of Toronto-based Advisor Impact. “But understanding how many clients you can take on is important for the advisor and the client.”

Most advisors haven’t thought through the vision of their business and are basically reactive, says Norm Trainor, president and CEO of The Covenant Group in Toronto. Right-sizing your practice can improve how you work and get you closer to your career goals faster. In fact, he says advisors who successfully right-size their business can expect revenue to grow by up to 50%.

Not a simple answer

What is the optimal number of clients? Mathematical theory says the number is around 150, or Dunbar’s number. That’s the theoretical limit to the number of people with whom you can maintain stable social relationships. Trainor says that number is reasonable if the advisor has additional resources and is working as more of a wealth manager for his or her clients. “For most advisors, the magic number is between 70 and 120 clients, but it depends on resources. An advisor working without any support would have difficulty with a practice larger than 50 or 60,” he says. If you have 150 or more families, for example, Trainor says you would need a team of at least three people you can trust.

Of course, the size of your clients’ assets enters the equation. And what about how many weeks a year you’d like to have for vacation? Also, don’t forget the overall financial goals for your business. Once you begin to discuss the idea of a limit, it becomes apparent the concept is more complicated than some theoretical number. There are many variables that will determine just how many clients you should be aiming for in your practice. Figuring it all out requires thinking about your ideal client, identifying what service you want to provide them, and then assessing how you spend your time.

Who is my ideal client?

Trainor says your description of an ideal client needs to be specific. Art Schooley, president of The Personal Coach in Waterloo, Ontario, agrees. “One way to identify ideal clients is to think about what qualities they will have, so what geographic area, age, occupation, income range, asset range,” he says. “You also want a client who is looking for direction from you.” Think about what type of people you get along with, have the most fun with and do your best work for, he says. Don’t forget to consider your client’s potential to bring you new business.

Once you’ve got an image of your ideal client, think about what he or she will need and want from an advisor. You’re creating a value proposition, says Trainor. Will your clients want a more transactional relationship where they only buy products a few times a year? Or will your clients be busy entrepreneurs who come to you for a more holistic wealth management role? Create a detailed list that includes all of the services you will provide.

“What falls out of this process is a clearer definition of the types of relationships [advisors] want to have and the people to target,” says Trainor. Defining who you want your client to be also allows you to become more targeted in your offerings and services. “You can focus on the appropriate products and services for your clients and what new ideas you need to bring to that market,” he says. You can then price your services accordingly.

Clarity of message also helps attract new clients since it helps you improve your services to existing clients. “Remember, you can’t define service excellence in a vacuum,” says Trainor. “Many advisors just try to give more and more when they don’t have a client and market clearly defined. This is impossible to keep up.”

How much time do I have?

With the image of an ideal client in mind, the next step in determining how many clients your practice can handle is assessing time management.

Littlechild says an easy way to do this is by looking at your optimal capacity. “If you only had top clients, how many could you manage with your existing resources?” she asks. “You need to understand how much time it takes to manage one of your top client relationships.” For example, say you typically meet a top client four times a year. Each meeting takes an hour with 30 minutes of prep time, plus additional time spent reviewing the file. You’ll also need to re-balance or review goals, and make sure your client feels appreciated. All of this takes time, says Littlechild, and you have to figure out how much time it takes you to deliver the level of service and value you want for your clients.

Now, pick up a calendar. Of the 52 weeks in a year, four of those might be spent on vacationing and a few more on training and networking events. “How many weeks are available for client-facing meetings?” asks Littlechild. “It typically ends up between 42 and 45 weeks a year and each week has about 40 hours. What you’re trying to get at is how many hours you have available to deal with clients.” You won’t spend all 40 hours with existing clients – you’ll need time to prospect, or else your business won’t grow. Littlechild says advisors typically spend between 50% and 60% of their time focused on existing clients and the remaining time across all other functions in the business.

Once you’ve got your numbers figured out, do the math. Take the number of hours you have available in a year. “If you divide that by the number of hours required to manage a top client, then you will have a sense of the optimal number of clients. This may be theoretical, because you don’t only have top clients, but it will get you evaluating how you deliver service,” says Littlechild. What the math often reveals is that advisors would need 100% of their time to manage their top clients alone. It’s at this point an advisor needs to get out of her head and look at how she’s going to manage her book.

More practical, please

Few advisors have a book with only top tier clients. Schooley says that advisors need to return to their idea of an ideal client. “Give a score for each of your criteria categories – occupation, geography, demographics, earnings, etc. – and then rate your existing clients accordingly,” he says. When all of your clients have a score, segment them into groups. Keeping in mind the value proposition you outlined earlier for top-tier clients, figure out what each of the remaining segments will receive. “This determines [the level of] commitment to each client segment,” says Schooley. This exercise provides a framework for an advisor to organize time and direct effort more efficiently.

So what if you go through this process and realize you have a lot of capacity? In that case, Littlechild says, you’re probably an advisor earlier in your career, and you need to spend additional time on sales and marketing. More often, though, advisors do not have enough capacity to handle their current client base in the manner they want. Littlechild says there are a number of things you can do if you find yourself in this position. “You can add more resources by hiring staff, or, if you already have a staff, delegate more,” she says. With a clearly segmented client base, it’s now easier to delegate activities associated with lower-tier clients to other people in your business. “You might also want to consider that you could be over servicing. Refine your offer by asking your clients what they expect from you and what services of yours they value,” she says. You could discover you’re exhausting yourself by seeing clients four times a year when they only want three meetings or that you’re sending detailed reports they aren’t even reading. Another area to look at is efficiency. There could be an opportunity to standardize your processes or add new technology to support scheduling or systems management.

Payoff is clear

Alan MacDonald is an advisor with Richardson GMP in Ottawa. A few years ago, he was managing 300 clients but was nowhere near his revenue objectives. He noticed a few of his colleagues didn’t need to work as hard as he did when dealing with their client base. He started to feel like he was falling behind. “The risk is that once you get behind, you start dealing with the top of the pile,” he says. “The clients that don’t reach out to you tend to fall off the radar [DASH] [yet] those are often the ideal ones because they’re so busy running their successful lives.” He was sometimes spending extra time with lower-tier clients because they initiated contact more often than his higher-tier ones, and MacDonald became concerned he wasn’t delivering on his value proposition fairly for all of his clients. “Then I came to this realization: if you keep the same number of relationships, you’re caught at one revenue level.”

MacDonald looked to a coach for guidance on how to navigate the right-sizing process. He began by defining his ideal client. “It felt a little hokey at first,” he admitted, but he soon got caught up in the process. “You figure out who your ideal client is by looking at your book and seeing who you like dealing with most and seeing what characteristics they share. The second part is figuring out what you do for those people. That’s tough. Do I trade stocks? Do I do a great job on their insurance?” MacDonald says advisors tend to think in products initially, but should also consider they might actually be wealth creators or wealth preservers for their clients.

After he defined his ideal clients and their associated services, MacDonald took a hard look at his book. He went from 300 to 80 relationships by passing clients onto a junior colleague he trusted.

“I immediately had a big jump in revenue. I was putting my focused attention on my relationships,” says MacDonald. He could get ahead of things like scheduling reviews, organizing investment approaches and creating tools to help clients get closer to their goals. The most rewarding side effect was getting to know his clients on a more personal level. “You start focusing on those people and they give you more of their own money, and then start sending people to you,” he says.

The exercise of right-sizing a practice ultimately forces an advisor to develop a more defined business strategy. “You can’t be all things to all people, and while you don’t have to entirely specialize, you need to figure out where your best work is,” says Schooley.

If your goal is to consistently deliver a certain level of service, you need to get real about the numbers in the business, says Littlechild. “We’ve got to ask these questions. We’re doing it for clients as much as for ourselves.”

For MacDonald, the process dramatically changed his business. He learned an important lesson: if you don’t know who you want as a client, you won’t recognize him when he knocks at your door.