Why to focus on specific clients

On my March Break trip to Naples, Fla., I had the opportunity to visit some Canadian snowbirds. I was amazed that all of the retirees I spoke to said they were as busy as ever, and were enjoying every minute of retirement. The key was simplicity.

Most of them rarely left their compound and they had daily routines of exercising, social events, bridge clubs, golf, and so on. They enjoyed the company of friends they had made over their many years of wintering in Florida.

I realized we are all creatures of habit and enjoy a certain routine and simplicity in our lives. These individuals made the decision to simplify their lives and have never been happier. It got me thinking of whether we could all simplify our lives and be happier.

I have found that simplifying your advisory business by focusing on a specific client base works well. Your top 20%-30% of clients generate 70%-95% of your revenue and the bottom 50% of clients account for less than 5% of your revenue.

Advisors who have analyzed their business have generally been shocked at how consistent this rule is. Most have started to do something about it, and based on the feedback I’ve received, disengaging certain clients has transformed advisors’ practices.

Based on the benefits of segmenting a book, I decided to investigate how to simplify the number of products or holdings in an advisor’s book of business.

The first book I reviewed had just shy of $70M in assets with an astonishing 810 positions. When I went over the results, the advisor was shocked by the number, as well as the names in the book. The bottom 10% of the positions averaged $950 in value compared to an average of $595,000 for the top 10%.

As we went deeper into the analysis, the advisor acknowledged that he was jeopardizing his fiduciary responsibility to many of his clients—the sheer number of holdings prevented him from properly monitoring all of these positions. He immediately decided he needed a more structured investment process. The process he put in place was sophisticated, yet as simple to implement as it was consistent.

He took his top clients and continued to deliver a customized approach with a core of his favourite mutual funds, along with individual stock and bond positions as well as alternatives. He reduced the number of mutual fund firms within the business, from more than 20 down to five. There were differences and certain advantages to some of the funds he removed, but the potential portfolio and performance advantages were far outweighed by the effort to keep up to date.

For the rest of his clients he restricted his portfolios to managed solutions. He used the same mutual fund companies as he did for his top clients, with the added benefits of rebalancing tools, a corporate-class structure for open accounts, and fee discounts for larger clients who were not in the top 20%.

Instead of rushing to create a unique review package for each client, his team met once a quarter to organize the overall review package and used the same comprehensive report for all clients. The professionalism of the package improved, the team had superior product insight, and the delivery was simplified.

I learned a lot on my March break from those who have more experience in business than I do. I once heard the definition of experience is “those with it have already made the mistakes that those without it have yet to learn from.” I am going to make a commitment to simplifying my business and overall life and hopefully I will be fortunate to retire like my new friends who are already there.

Keith Pangretitsch is director, national sales at Russell Investments Canada Limited, who has a passion for helping advisors grow more efficient and profitable businesses. He is an active member of Russell’s Practice Management program which has worked with more than 1,200 advisory teams across North America and Europe.