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If you need heart surgery, would you hire the best cardiac surgeon you can afford, or work with whatever medical professional you can find?
I don’t know about you, but I wouldn’t be looking for a proctologist to conduct open heart surgery. A colorectal surgeon could probably do an adequate job outside their realm of medicine, but I’d rather not find out.
Once you become an established financial advisor, you must determine your niche and work within it as a doctor would. Sure, you could do an OK job outside your area of expertise, but wouldn’t it be better for the client to work with an advisor specializing in that area?
Now, before you get fired up about being the best match for all your clients, hear me out.
When you first started in your practice, you had a low level of experience and expertise, which is normal. Every advisor has to start somewhere. For most novice advisors, that typically means you are eager to serve anyone and everyone willing to hire you. You couldn’t afford to be picky, and that’s OK!
However, as your practice grows and service improves, consider changing who you work with. I don’t mean you should kick your clients to the curb, but you need to acknowledge the type of clients you serve best.
You see, the advisors who are killing it in our industry understand their lane and don’t deviate from it. They’re not taking on the bingo buddy of a client’s great aunt who needs help with debt consolidation (unless that’s the lane you’ve chosen). The rock stars who consistently level-up are so committed to staying in their lane that they understand that, eventually, they will outgrow some of their existing clients. And you will, too.
You probably have wonderful clients in your book who have stayed with you for decades. They’ve helped pay your mortgage, and you’ve guided them through life’s triumphs and challenges. You’ve built an impactful relationship with these people.
However, you need to recognize that you’re doing a disservice to your clients who don’t fit your niche. You're robbing clients of value by keeping them onboard and denying them a better opportunity. And when you retain ill-fit clients, you’re missing out on tremendous revenue potential, and your reputation as an advisor is on the line.
There’s a lot of head trash about graduating clients, so let’s break down how you can overcome it.
The problem with segmenting clients
You’ve probably heard industry “experts” say you can segment your client book or establish service levels based on their needs. These experts propose that you provide different service levels with varying fees.
Maybe this works in La La Land, but it won’t work in real life. As a coach, I’ve seen many advisors attempt to provide varying service levels, yet I have not seen it work in the trenches.
Advisors often segment their business by offering discounts or making exceptions to their fees. Maybe there’s a cluster of clients that you deliver less value to because they aren’t paying as much. No matter how you slice it, nearly all advisors segment clients on some level.
One way to identify segments in your book of business is to determine who you’re delivering value to and who’s getting less. Don’t be surprised if you catch yourself trying to justify your answers.
Maybe you have some clients who don’t pay as much as everyone else, so you didn’t include them in your last value-add, or worse yet, you haven’t personally made contact with them in years.
Have you invited these B-level clients to become A-level clients? Have you told these clients that as B-level clients, they’re receiving fewer services?
Probably not.
Your B-level clients feel they’re getting comprehensive financial advice — your best services — because you’ve never given them a reason to think otherwise. How much damage will it do to your reputation when Sue, who is not a top-tier client, tells her friends that she worked with you for years and that while you offered all of these services to other people, you didn’t offer them op her?
Can you see how you’re doing these people a disservice?
Established advisors only need one tier of clients, and these are the clients with whom they do their best work. You need to set this same boundary for your practice.
How to find your lane
How do you know which clients you serve best?
Well, you need to go through our Red, Yellow, Green exercise to help you identify which clients need to go (red), who you need to offer an opportunity to upgrade (yellow), and the clients who are s perfect match (green).
Before we dig into how the exercise works, you need to set a few parameters:
1. Ask yourself what your ideal practice looks like.
For example, if you want to gross $1 million in revenue and have 200 clients, you need a revenue average of $5,000 per client.
2. Set your benchmarks.
Every client below $5,000 isn’t driving you toward your ideal client. Even though math says you need an average of $5,000, real life doesn’t work like that.
$5,000 needs to become your new minimum, and clients who fall materially below the minimum are not a good fit for your practice.
After these parameters are in place, you’ll create a spreadsheet of your entire client list. Feel free to hide the names, especially if a friend is helping you through this exercise.
Set up your spreadsheet to automatically sort into the color categories so you don’t have to decide on each client.
Be sure to include these data points:
- Net worth
- Revenue generated
- Assets under management
If you don’t have net worth data for your clients, don’t sweat it -- you can still do the exercise.
Instead of graduating clients below your new minimum, allow them to upgrade and pay your full fee schedule to receive your complete services.
Any clients in red should be graduated to an advisor better suited to their needs. It doesn’t happen very often, but you may have clients who are imposters — they aren’t interested in becoming real clients, or they could be challenging to work with.
That’s OK! Send them on to an advisor who would be a better fit.
Word of warning:
Don’t get into your client’s pocketbooks.
For your yellow clients, to whom you’ve offered the opportunity to upgrade, let them decide if paying more for the full range of services makes sense for them. Don’t decide for them by graduating them automatically.
Don’t wait for cleaning up your client list to magically happen. It won’t. You’re going to have to work for it. It’ll be hard, but I promise it’ll be worth it.
Action item
2024 must be your year to upgrade or graduate clients who aren’t receiving your complete services or paying appropriate fees.
This week, go through the Red, Yellow, and Green exercise with an advisor you trust who will call you out on your excuses.
Matthew Jarvis, CFP®, ChFC, is the co-founder of The Perfect RIA, one of the industry's most recognized advisor training platforms. Just 10 years prior, he was buried in debt, with a badly struggling practice and a morning routine of trying to figure out how to quit the industry without looking like a failure. Through several turns of fate, Jarvis clawed from near failure to the top of the industry. Today, alongside running his incredibly profitable and successful practice, Jarvis guides other advisors on duplicating his success in their practice.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
