14 April 2016
How do advisers target clients?
FAMR Adviser Home Report –Man v Machine Mk11
Extract 1 – How do advisers target clients?
It’s said that since RDR advisers only deal with higher net worth clients – as part of our FAMR related adviser research we needed to test this assumption. Here’s our summary findings on this from research covering 120 individual advisers.
What determines client profitability – in terms of their income or wealth? Profit Tipping Points
Adviser comments on economics driven client targeting
We estimate we need to earn £1500 p.a. to break-even on a full service face to face advice case
I would like to make £1000 per case, with expenses and tax that equates to a net £500
I retain low net worth clients but some of them now cost me to service and I am beginning to turn away new clients who have less than £100k
Minimum earning requirement over a 12 month period is £500 otherwise not viable. That is for our lowest service level
I need at least £500-£750 to complete a review and provide advice. These ex clients are now in the advice wilderness and generally speaking only the middle class and wealthy have any access to quality financial advice
Minimum net wealth (investable assets) of £250,000 or more
At retirement £50,000 but consideration given to relationships with family, or employer, to adviser firm
With all the compliance, regulation and management and review procedures it is difficult to offer our services to anyone with less than £50,000.
The majority of our clients have relatively low incomes but significant investable wealth - average amount invested is coming close to £500k
Investable wealth of £25,000 will only generate £125 per year in on- going advice at 0.5% and that won’t warrant a full annual review, maybe an email review would work
One of our clients on £25,000 a year and with no assets aside from his house just received £750,000 from a critical Illness policy we arranged, and we are now investing this money
Comments indicating a more rounded approach to client targeting
We look both at current levels but also future prospects & family
A degree of cross-subsidy within the firm helps to ensure that less well-off clients receive the appropriate service they need to achieve their goals
Referrals - possibly the most important aspect of our business and that of thousands of adviser firms. If a client with an income of less than £30,000 and less than £25,000 of investable wealth provides 3 good-quality personal recommendations, then an unprofitable client becomes very profitable overnight!
The profitability of a client should not be measured by investable assets; holistic advice includes strategic aspects outside of the investment arena -so the total amount of investable assets can be irrelevant
All clients can be profitable; it’s just a matter of scale to meet client demand. A not so valuable client today can be tomorrow’s valuable client or can be related to one. EVERY client is Valuable
We can earn money from low value clients even if only as a contribution to fixed costs. I have always taken the view that the low value client may introduce to higher value referrals
It is still possible to make profit from less affluent clients if costs can be kept manageable
A mortgage and some protection could easily be profitable with low income and capital to invest
There are many advisers that deal with lower wealth clients, you can see their income/wealth is irrelevant. There is a place for both the small transactional adviser and the HNW wealth maintenance adviser
What factors determine the clients advisers deal with?
Note: respondents were asked to rate these factors as Important, Very Important, Unimportant and Very Unimportant – the figures below have been weighted such that a “Very” response is given a double weighting. As we would expect – Personal Relationship is the strongest factor.
Do you agree? Please share your views below>>
