A cursory look at social media forums, traditional financial services media, or even the agenda at your typical advice PD day, would suggest that advisers are desperately seeking assistance on one thing: referrals. How to get more clients in the door to grow the value of the business.
However, a growing number of marketing theorists and business consultants have begun to recognise that the same, if not more, value can be extracted from existing clients, rather than new ones. Among these theories is ‘flipping the funnel’, a concept developed by marketing consultant Joseph Jaffe, which argues that marketing budgets should be spent on retention, not acquisition.
According to Jaffe, too many companies operate on the assumption that just because the phone isn’t ringing, their customers are happy and content. “Not surprisingly, the same companies are equally shocked when they open up the customer cupboard to find it bare,” says Jaffe in his book, Flip the Funnel.
“New customer service anticipates requirements, listens actively for customers in need, and proactively searches for problems to fix. Part of this process is an engaged listening strategy designed to identify opportunities, spot problems before they balloon, and surprise (and hopefully delight) consumers by making an unexpected move in the form of responding to them,” Jaffe explains.
A similar argument is put forward by Seaview Consulting, an advisory business that specialises in valuations for professional advice businesses and licensees.
According to Seaview’s David Fotheringham, there are significant new revenue opportunities in the existing client bases of well-established and mature professional advice businesses.
“In any three to five year period, for the majority of clients, their personal circumstances would have altered sufficiently enough to warrant a review and most likely a variation to their financial affairs,” says Fotheringham.
marketing budgets should be spent on retention, not acquisition
However, he believes advice businesses are failing to effectively leverage this value, because they have out of date data and poor review processes.
“Traditionally, client segmentation is determined on the initial data gathered and a client being allocated a classification based on this data. Research has indicated in excess of 60% of some client bases are either not contacted or are disengaged from the business, preventing this data from being updated,” Fotheringham says.
“Further, most advice businesses say they are ‘too busy’ to contact all their clients, so they focus on specific clients based on their circumstances and profile, both of which are likely to be out of date. This is not only an inefficient process, but also devalues the business over the longer-term.”
Brian Perrin, a 25-year veteran of the advice industry, first identified the hidden value in existing clients when running his own advice practice.
Maintaining a book of over 1,800 clients with a team of just one adviser and three support staff, Perrin said he initially struggled to deliver the kind of ongoing service his clients expected, and deserved.
“When I started my own practice, I was the hunter. All my activity was focused on income and everyone was a potential client!” Perrin says.
“But I knew deep down that long-term business isn’t all about the sale. Relationships are critical, but I was so busy trying to recruit new clients that I didn’t create the systems and processes needed to nurture them. It wasn’t long before I realised I was losing clients due to lack of contact or service.”
This realisation led Perrin to develop a process to help him find out which clients needed advice in the next month so he knew which clients to call, and why.
“I needed my client review process to operate reliably on autopilot,” he says. “I knew the formula was to find those clients whose circumstances had changed and relate those circumstances to their current advice needs. This simple discovery led me to develop a system, and software, that kept my client contact details and data updated. This meant I could offer related referral advice and services tailored to their needs.”
Having successfully implemented this process in his own practice, Perrin has now made the system available to the wider advice market, through his consulting arm, Complete Client Connection.
Perrin’s model works by managing the initial contact on behalf of the adviser. Each client is called to determine whether their contact details remain up to date, and whether their personal circumstances have changed in the time since they last saw their adviser. Where an advice trigger is identified, the client is passed back to the adviser, who then conducts a formal review.
The results Complete Client Connection has achieved to date highlight the value of so-called ‘C and D’ clients.
The quality of data has a real financial value attributable to it
More than 1,200 clients have been contacted by Complete Client Connection to date. Of those that were able to be reached:
- 50.6% said they would like a review of their current risk insurance to make sure it represents value for money
- 30.7% said they were interested in finding out about other risk insurance products that they did not currently hold
- 22.29% said they had other policies that were not serviced by their adviser
- 77.11% said they would like to be contacted annually for a review
Perrin also believes advisers have a moral obligation to make certain that the advice provided to a client continues to remain relevant to their current circumstances:
“How many clients have stopped smoking and are still paying smoking rates for insurance? How many clients have income protection benefits that are not aligned to their current income? How many claims are yet to be made because the client is unaware they are eligible to claim on the insurance they have in place?”
Providing proactive servicing to clients and identifying ways to save them money or improve their financial circumstances not only delivers immediate value to the client, it also builds loyalty.
“Lindsay Fox was once an owner-driver who borrowed money for his second truck. In the same way, all ‘A’ clients were once a ‘C’ client,” points out Perrin. “By keeping the client connected to the practice, and capturing their advice needs and triggers when they occur, the adviser can move their clients up the advice value chain.
The problem of data
Perrin believes most advice businesses are not currently set up to effectively leverage the value hidden within their C and D client bases. The first problem appears to be the quality of their client data.
Research conducted by CoreData earlier this year, which analysed existing advice clients across 13 practices, found that more than half (57.8%) of the practices had incorrect contact details for their clients. One in three respondents contacted had a wrong number on file, and one in four provided new contact details. 29% could not be reached at all.
Jim Prigg, MD and Director of Client Relationships at KnowledgeMaster, a sales training consultancy for financial professionals, says this also points to the inability of the client to identify their own advice needs.
“Advisers are the only people who know why clients initially take advice from them, or what need was met by taking out a particular product,” says Prigg.
He says while clients may have acted on the initial need by getting in contact with the adviser, it is likely they have an expectation that, now they are in an advice relationship, the adviser will be the one to help them identify any new needs.
The CoreData research supports this assertion, finding that 36% of clients contacted had experienced an advice trigger since last seeing their adviser.
The most common advice triggers were:
- Not having updated their super fund’s beneficiary nomination in the past two years (29.5%)
- Wanting a review of existing risk insurance arrangements (18.2%)
- A change of dependents (16.5%)
- A change of income (11.9%)
“Advisers need to have dialogue with their client bases. Product manufacturers don’t have dialogue. Dealer groups don’t have dialogue, and support staff don’t have dialogue. That is the adviser’s responsibility and requirement,” says Prigg.
“Advisers can turn these contacts into opportunities for a regular and reliable information download for clients. This translates into respect, recognition and referrals.”
In addition, the accuracy of client data is used by consultants like Seaview when generating a business valuation. This is not just an important consideration for business owners preparing to sell, but also for those looking to expand through acquisition.
most advisers fail to place an appropriate value on their own time
Seaview’s Fotheringham explains:
“In simple terms, a business value is determined by the formula (Earnings x Capitalisation Rate). Earnings are calculated as the normal future maintainable earnings from the business (Revenue less Costs). The capitalisation rate is more subjective and is assessed by (Revenue Growth Prospects less Risk).
“Whether presenting a business for sale or reviewing a business for an acquisition, a key factor is the quality of the data and how it is presented to illustrate revenue growth and to minimise risk.
“The quality of data (completeness, accuracy and timeliness) has a real financial value attributable to it.
“For example, when performing valuation assignments for a credit proposal, the ability to meet interest and capital repayments is predicated on the ongoing income attributable to each client’s servicing agreement and the business’ ability to provide a positive engagement experience for each client to ensure an ongoing relationship continues.
“The inability to provide the segmented data on contact and advice activity results in a downgrading of valuation multiples and therefore the overall value of the asset. A lower valuation impacts borrowing capacity and the business’ ability to negotiate more favourable terms, or may lead to additional loan covenants.”
The problem of time
The second barrier to extracting value from existing clients is time.
According to Perrin, most advisers fail to place an appropriate value on their own time.
“Advisers are highly skilled professionals,” he says. “Their core skills lie in being able to engage and build relationships with clients, identifying their needs, and then applying technical knowledge to meet these needs through financial solutions. This brings significant value to the business. But because many advisers are also business owners, they forget to consider what the business loses if they are not performing their core role.
“Is data checking and cold-calling clients really the best use of an adviser’s time?”
One solution is to employ additional staff in the practice, whose primary purpose is to service existing clients. This approach has been successfully implemented by advisers Sacha and Igor Loutkovsky, in their Paramatta-based risk practice, Loufin.
“When a client’s renewal notice comes from the insurer, our review team cross-reference that against our database to determine if the client is due for a review,” Loufin Director, Sacha, explains.
“We assess the clients against five review categories, and use that information to tailor the letter we send to them to invite them to come in for a review. In general, we will target anyone who we have not seen for the last three years, but there are other review triggers. For example, if the client is younger, or has had a medical change, we will invite them in to discuss whether level premiums are a more appropriate option.”
Even those clients who aren’t specifically targeted for a review are sent a letter from the practice, advising them to look out for their renewal notice from the insurer in the mail, and reiterating the value of the cover. The letter also reminds the client to get in contact with the practice if their circumstances have changed, or if they have experienced a claimable event.
“We re-engineered all of our client communications so they were less about ‘Here is your new premium’, and more about ‘How can we help you?’.”
The review process is managed almost exclusively by a team of advisers who have been employed to provide a greater level of engagement with the growing firm’s existing clients.
“It is an area of differentiation for us,” says Sacha. “So many advisers are operating in a single-adviser business, and they simply don’t have the time to provide that level of ongoing engagement. They may have grown too fast too quickly, which is a good problem to have, but then they end up neglecting the clients that helped them get started in the first place.
“It’s also had a major impact on the way our clients view us. We’re seen as ‘advisers’, not product sales people.”
Another approach, says Seaview, is to outsource.
“Outsourcing is simply assigning specific procedures to another business (rather than an employee) to complete specified tasks,” says Fotheringham. “It is a business to business relationship that can be managed by service level agreements (SLA) that specify the manner and quality in which the assigned tasks are to be completed.”
Fotheringham believes that managing outsourced arrangements through SLAs can be easier than managing staff directly, and provides a range of additional benefits including:
- Access to specialist staff and tools dedicated to the outsourced task which would not otherwise be available or affordable to the business
- Flexibility in the timing of the completion in the task e.g. completing tasks outside normal work hours
- Frees up internal time to be redirected into revenue generating activities or more important revenue support activities
- Management of performance to service level agreements with the potential for recourse if errors occur
- Faster adoption of operational efficiencies through the skills and resources engaged with the outsourced service provider
With a range of options available to the savvy adviser, and clear evidence that there is value to be gained from engaging with existing clients, Perrin believes advisers would be remiss not to develop a review process for their business.
“In a perfect practice, all an adviser does is give advice, and, if they’re the practice owner, develop strategies to continue to grow and sustain the business. The only way to do that is to build systems and processes that drive efficiencies and remove the reliance on key people.”
About the Contributors
Joseph Jaffe is an author, keynote speaker, and ‘Chief Interruptor’ of Powered, a full-service social media agency that plans, builds and activates measurable and enduring experiences between brands, their customers and their online communities – Website | Twitter | Facebook
Seaview Consulting is an advisory business that specialises in providing strategic and operational advice to professional advice businesses and licensees. Seaview are valuation experts and are approved valuers for a range of credit providers and assist owners buy and sell businesses. Seaview are experts in assessing, constructing and implementing outsourcing arrangements including those with overseas suppliers – Website | Twitter | LinkedIn
Brian Perrin is the founder of Complete Client Connection, a client review system designed to help financial practices find the clients who need their services, when they’re needed. Complete Client Connection is a proud member of www.adviceinnovation.com.au – Website | Email
CoreData is a specialist financial services research and consulting business with operations in Australia, the United Kingdom, Singapore, the Philippines and the United States – Website | Twitter | Email
Jim Prigg is the Managing Director of Knowledgemaster, which provides sales skills training for financial advisers – Website | Telephone: 03 5232 1500