Success looks different for every financial planning firm. But a Professional Planner/MLC Advice Partnerships forum has identified some of the common elements. And it all starts with the client. Simon Hoyle reports.

Your definition of success depends on your objectives. But success for everyone also has some common elements; and in financial planning success invariably

starts with the client.In practice management terms, that means

segmenting clients into relevant and distinguishable groups, and ensuring that the service the firm offers to each segment is both valued by that segment, and profitable to the business.

But neither of those steps is necessarily straightforward or easy, particularly for a group of individuals like financial planners, who by their very nature are predisposed to help others.

Steve Beattie, director and senior partner of Wealth Management Partners, says his current approach to defining four client segments began when his business started in 2003.

“Over the years that’s been evolving,” he says.“The components of the service package are

reviewed each year and costed, so we ensure that there’s profitability into the practice to do that. And so we’ve been doing it since we started and continue to evolve that and refine it to make sure it stays relevant, given a change of client needs and changes in the urban environment.”

Segmentation poses a different challenge for Peter Kirby, principal financial adviser at Life Risk Management. LRM is a specialist risk business, and deals with a number of referral partners. For Kirby, segmenting those partners is as important as segmenting the clients they refer.

“We’ve got about 15 referral partners that refer to us, so we segment them A, B and C,” Kirby says.

“The As [are] where we actually work out of their

offices and have a strong commercial relationship, with rent and space out of their offices to make it all commercial and proper. So a bit of a different model than the average financial planning firm that prices and segments upfront.”

Anne Graham, managing director of McPhail HLG Financial Planning, says: “We have, say, three service levels and we price each level according to the service that we’re offering the client and that the client agrees to, and our pricing is based on a fee basis.

“The fee has been costed out according to the service that we’re providing, and some clients might fall into the segment of, say, the A client, but they might be paying B-client fees, but that’s because they’re a strong advocate or a great referrer or they’ve got business with one of our other areas of the business. So it’s not all just about fees, but that has a strong element in the matrix,” she says.

“In our case often the issue isn’t that they’re paying too much for what they’re getting; they’re often paying too little for what they’re getting, because we’re very helpful people. So we try and review it regularly to make sure everything’s in line.”

BASED ON REVENUEPaul Hardick, director of First Capital Financial

Planning, says the firm has applied a segmentation model to an existing client base, and the segments are based on revenue to the business.

“We’ve been trying to price [our service] accordingly – so similar to everyone else, except we just started out with all the Cs,” he says.

It’s common that a segmentation approach

AS EASY ASA, B AND C

ParticipantsDuncan McPhersonhead of licensee and

productivity, MLC Advice Partnerships

Anne Grahammanaging director,

McPhail HLG Financial Planning

Terry Powellmanaging director,

PrincipleFocus Private Wealth

Bob Neilldirector,

Seaview Consulting

Sue Viskovicfounder,

Elixir Consulting

Peter Kirbyprincipal financial adviser, Life Risk

Management

Jim Stackpoolfounder, Strategic

Consulting and Training

Adam Tuckermedical director, Beddoes Institute

Paul Hardickdirector, First Capital

Financial Planning

Steve Beattiedirector and senior

partner, Wealth Management Partners

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IN OUR CASE OFTEN THE ISSUE ISN’T THAT THEY’RE PAYING TOO MUCH FOR WHAT THEY’RE GETTING; THEY’RE OFTEN PAYING TOO LITTLE FOR WHAT THEY’RE GETTING, BECAUSE WE’RE VERY HELPFUL PEOPLE

PETER KIRBYA non-principal-

reliant business, with strong growth on revenue and profit year-in, year-out; that is providing a service to clients that they’re proud of; that is seen as an industry leader, and seen by the clients as someone that they’ll refer their family and friends to. Simple.

ANNE GRAHAM A successful business

would be a business, and not a cottage industry – a practice run like a business. A successful business would be where you’re growing the skills of your team and your staff and they’re happy to come to work, but it’s also a client-centric business, and it goes without saying that you’re making a good profit.

STEVE BEATTIEWhen the great-

grandchildren of the clients of the business are dealing with the third-generation owners of that business. I don’t think I’ll be around to see that, but it would be nice if I was. We’re running a business and it’s got to be sustainable well beyond the people in that business – the staff, the clients and the owners – and for that to happen the business has to remain relevant.

TERRY POWELLA successful business

would be a specific, consistent, methodical approach delivered by a talented team of people, and the basic starting point is to help our clients identify and gain clarity around the financial outcomes that are important to them. Ultimately I’d like to see our business identify other innovative thinkers and build a national business all up and down the eastern seaboard of Australia.

PAUL HARDICKI see it as the

merging or acquiring of accountancy under financial planning and possibly mortgage broking to form these larger, independent groups as opposed to institutions and unions and industry funds. Obviously you want your profit margins…but that comes from the quality of the advice reputation. It’s the independence phase that I think people are going to really appreciate.

PLANNERS DEFINING SUCCESS

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evolves over time, says Terry Powell, managing director, PrincipleFocus Private Wealth.

“We’ve still got a nucleus of ‘old world’-type clients, which are more transactional, but we’re moving more and more away from that,” Powell says.

“It might be eventually that we actually have a relationship with another organisation, [and] we outsource those type of transactional clients. But at the moment it’s a bit of a mix, but we’re evolving.

“The more and more the business evolves, the more belief we have in it.

“We truly believe there’s enormous value in what we’re doing or what we’re offering and then ultimately it’s in the eye of the

beholder as to whether they see that or not. But we’re seeing that that’s improving all the time.”

After a firm has successfully segmented its client base, the next step is to define and then price a service offering to each segment. Graham says that if a firm identifies clients that are unprofitable, then the smart, though sometimes difficult, response is to move them on.

“I’d probably do that every few years,” Graham says.

“You’ve got to treat clients with respect though; you can’t just ignore them or turf them out. And a lot of the older ones have been really loyal and helped us grow the business, so…I couldn’t be reckless with them.”

RUTHLESSNESSKirby says a certain degree of ruthlessness

is also needed when buying or merging businesses.

“When you merge four businesses together there was quite a big tail, so we went through that transition of selling those clients that weren’t, I guess, advocates of our business and weren’t on our ongoing service structure,” he says.

Bob Neill, director of Seaview Consulting, says there’s a strong market at the moment for businesses looking to buy “blocks of clients” that other firms might regard as unprofitable.

“You either need to make a decision as

a business that you create a capability to provide different layers of service or different types of service to that captive client base, so your business model around service probably changes; or you could become quite clinical around the sort of clients you need to fit into your service model,” Neill says.

“Far and away the most profitable businesses we’ve worked with segment before the client even comes in the door. They walk in to a client, they have one page that tells the client what they do and three pages that tell the client what they don’t do. They say if you’re looking for this collection of activities, then we’re not the advice business for you. Very delineated around what they do, and they’re highly profitable; highly efficient;

very, very low turnover of clients.”Jim Stackpool, founder of Strategic

Consulting and Training, says if segmentation does nothing else, it should help a business distinguish between transactional clients and clients who want an ongoing relationship.

“It’s absolutely crucial, because the industry’s still running on the transactional client as its base,” Stackpool says.

“We want to be able to determine in that first 15 minutes or half an hour, are you here for a relationship or are you here for the transaction?

“You get some complex transactions, which might take a couple of years, but I don’t think [those clients are] going to pay the ongoing fee, as they get more and more open to other offers and cheaper delivery methods.”

TWO WAYSThe head of licensee and productivity

for MLC Advice Partnerships, Duncan McPherson, says there’s two ways to look at the reasons for segmenting a client base.

“There’s segmentation for you to run a more efficient business and then there’s a segmentation that focuses on the customer and satisfying their needs and their life stage,” he says.

“Businesses need to be really clear on what their purpose is, to be able to make sure that they’re meeting the business outcomes but also really focusing very strongly on the customer. They’re the ones

who are really driving this, a lot more than they’ve ever done.

“That’s where technology can enable a lot more than it used to, to be a little bit more agile – you know, walk and chew gum – when you’re dealing with clients in a number of different ways.”

Adam Tucker, medical director of Beddoes Institute, says that from a marketing point of view, issues such as value propositions, ideal clients and segmentation are “all philosophies or approaches or techniques”.

“But there are other ways of using segmentation; and increasingly what we’re seeing is segmentation not done on a revenue basis but using behavioural endpoints: I am trying to grow a client from C to B, from B to A, et cetera,” he says.

“But what we don’t see is a lot of businesses actually saying no to clients, because we know the numbers, don’t we? I mean you get a bunch of clients in the top end [of a funnel] and the dropout is very small. You say yes to just about everyone.

“It’s very, very important to know what stage of growth your business is at. Are you early? Are you mid? Are you mature? The answer has different implications. And so one of the challenges that practices have is how to integrate the advice and the transaction of the advice and the insurance.

“There’s no doubt that just selling products is way more profitable than selling advice, but how to actually make advice profitable is really the challenge.”

SAYING NOSue Viskovic, founder of Elixir Consulting,

says saying “no” to clients can be difficult and awkward for financial planners.

“But when they get a handle on it and they understand how to do it elegantly – whether it be refer it to somebody else who can take care of them – then they get very clear on the message,” she says.

Kirby says “one of the most powerful things is being able to push back and say you don’t fit our ideal client model”.

“Our fee structure is what it is and if they don’t want to pay that or they don’t want to engage us further then we walk away.

“We say we’re here when you need us, and they usually call back, saying all right I can pay it now; but there are some people that think they can do it themselves and think they can research [investments], they believe industry funds are the way to go. You’re going to get those types of people; they’re going to

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YOU’VE GOT TO TREAT CLIENTS WITH RESPECT THOUGH; YOU CAN’T JUST IGNORE THEM OR TURF THEM OUT

come to advice firms for free advice. So walking away from a client that doesn’t fit your ideal model, or doesn’t want to pay for your fees, is probably a good thing.”

Viskovic says it helps if a firm attracts the “right” sort of client to start with, and that includes from referral partners.

“Then you don’t have to say no as often, because your magnet isn’t attracting the people that aren’t going to suit the model that you’re trying to build,” she says.

“The concept of segmentation is different if you’re applying it to an existing business that’s built through the legacy of what we’ve done over many, many years. That definition of segmentation is totally different to what you would do for new clients coming in; so you may say, ‘Well, I work in this specific niche, these are my skills and my expertise and the types of clients I want to work with’.

“Not all clients will want to engage at the same level, so then my offer might be different, depending on the needs that they have as an ongoing relationship – and then it’s priced accordingly. Not, ‘We price it because it’s a percentage of what money you happen to have’, and then we make up stuff to give you to justify that fee.”

Stackpool agrees that pricing should be based on value, and that value in a planner-client relationship exists in the planner’s skills, expertise and experience, not in the client’s assets or in the product the planner might recommend.

He says a planner can “add tremendous value in five minutes and deserves to get paid for that, not based upon the hour, or the product”.

LOCKED ON THE HOURS“But we’ve left the pricing lever locked on

the hours we’ve worked or the product we’ve sold,” he says.

“Release the pricing lever and understand the value you add. I think the business people of the future are coming to grips with that – it only took me ‘five minutes’, but that’s a $10,000 fee, and to have access to me every year it’s $10,000, just to have access to me.”

Tucker points out that in any case, advice “doesn’t actually take five minutes, it takes 10 years to get to that point” of expertise and experience. That’s where the value is, and

that’s how services should be priced.Hardick says his firm’s intellectual capital

features prominently in how it articulates its services to clients.

“We charge them not for hours, or to show the value – it’s the intellectual capital to get their outcomes,” he says.

“It’s all in the intellectual capital that they perceive they’re getting.”

Viskovic says good advice has a high value, but “I don’t think it means that everybody will have to end up starting to pay $20,000 a year for advice”.

“It will be based around the specialisation that people have,” she says.

“People will pay for what they’re getting, and it will be very specifically related to the value that people get out of it; but there’s still going to be a significant profit margin in it.”

UNDERVALUED, UNDERPRICEDNeill says many practices he’s worked

with over the years have tended to undervalue and therefore underprice their service, and have been reluctant to address the problem.

“The conversation goes, I want to be more profitable, more valuable, so we can put the prices up,” he says.

“The immediate reaction is, if I put my price up I’ll lose my clients. But if you have a conversation with them about how many clients they physically lost where the reason was because of the pricing, or they’ve not won a client because of the pricing, the proportion is incredibly small.

“I don’t think that businesses actually appreciate the value they deliver to the client, and almost without exception there’s a recoil if you have a conversation about putting the prices up. But [they] actually haven’t lost clients because of price. They might have lost clients for different reasons, but it’s generally not price related.”

Graham says taking the pricing decision away from the front-line advice staff is one way to avoid giving away or underpricing services.

“Our back office people are the best at determining the price,” she says.

“I undercharge, and they’ll challenge me on it. That’s really good. Then you discuss it and then you’re accountable to the rest of your team on what price you decided on.

“It also gives you the confidence to have the discussion with the client, because I think you’re right, not a lot of advisers recognise or think that they’ve actually added value.”

Beattie says having a clear business structure and objectives also helps in setting an appropriate price for services.

“If you’re making a transition in the way you run your business or the way you operate and you’re prepared to take the pain of that, it’s much easier to then have those discussions,” he says.

“If you haven’t gone through that thought process, and also the fact that genuinely you want to help people, there’s always this balance between geez, they don’t want to pay that much, but if I charge them this much I can make a quid out of it and at the same time I know I can help them and they’ll benefit.

“There’s that little bit of altruism that kicks into that equation. You’ve got to be also prepared to say, I could really help this person, probably not make the profit I want to from this initial relationship, but you know, I don’t want to let them walk out the door when I know I can genuinely help and they’d be better off.”

Powell says a committee approach “certainly does position you well not to be attached to the outcome”.

“You’ve got to let go of the outcome and focus on the process, which is very much around helping your clients get clarity and decisiveness about those aspirations they’re wanting to achieve,” he says.

“Then identify what the complexities are that are holding them back, which quite often is behavioural.

“Given the background we come from it is inherent, it’s almost ingrained within us, that we have to quantify a value financially. But if you’re a hammer, everything looks like a nail. That’s the environment we’ve come from. So we move away [from that] to the intangibles.

“You charge where there’s value there and if you believe you are believed.”

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YOU’VE GOT TO LET GO OF THE OUTCOME AND FOCUS ON THE PROCESS, WHICH IS VERY

MUCH AROUND HELPING YOUR CLIENTS GET CLARITY AND DECISIVENESS ABOUT THOSE

ASPIRATIONS THEY’RE WANTING TO ACHIEVE