Why Financial Planners must choose 'Advice Sensitive' clients.

For those businesses which provide advice as their ‘value-add’ to clients, e.g. professional service providers like accountants, lawyers and financial planners; it is important to be dealing with the right type of client. The ‘right’ client is not only profitable, but has needs and expectations that are matched to the offering of the firm. Too often business operators make the mistake of viewing any prospect as a potentially good client because they look at the immediate perceived financial gain. They do not understand or focus on the client characteristics that are the right match for their business, and the basis for a long term relationship.

Determining the criteria for classifying clients and determining the niche markets you want to serve is an important decision.  With my Financial Planning Adviser clients, we start the client classification process by using the example of a market where there are two types of clients - price sensitive and advice sensitive.

 

'Price Sensitive' clients are only concerned with the price they pay for your service or product. The characteristics of this type of client are that they;

• Want to pay the minimum price - the bigger the discount, the more satisfied they are!
• Don't want to pay fees for advice as they don't value expertise or experience
• Only see products as commodities
• want to go direct (cut out the middleman) and negotiate on price
• their loyalty is to the lowest priced provider - if they identify a cheaper supplier they will change to them

The problem for advice-based businesses is that this type of client will rarely be profitable. They will always question the fees being charged and not be focused on the outcomes or benefits being provided. This type of client can take up an enormous amount of time and resources, particularly if they are charged a flat fee (they want to get maximum value for the money spent.)

 

'Advice Sensitive' clients value expertise and experience. Their focus is on receiving a tailored solution matched to their needs. The characteristics of this type of client are that they;

• Want long term relationships where they can build trust with the adviser
• Have high expectations - they will pay fees for quality advice to achieve their goals
• Recognise the importance of quality and can define it for their own needs
• Are more fashion and lifestyle oriented
• Are vulnerable to better solutions if they perceive the current advise as being average
• Like the person touch and value proactive communication

The advice sensitive client knows that expertise and experience come at a cost and they are prepared to pay these fees if they believe they will achieve higher level outcomes. The key is that this style of client wants to have a relationship with an adviser they trust. They hate to phone a service provider and push buttons to speak to a person.

 

The two types of clients discussed above are at opposite end of the spectrum. There are many clients who fill in the space between these two positions. The key for any advice based business is to position their business so that they attract clients who have expectations and needs that are matched to their service offering and fee schedule. You do not want to provide a high level of advice to price sensitive clients or a price based service to advice sensitive clients. The outcome in each case is the same – dissatisfied clients and unprofitable business!!

 

The actions you can take to match your clients with your value-add are;

• Survey your top 20 clients. What words do they use to describe your business? Why do they do business with you? (Also consider - What criteria did you use to identify your top 20 clients?)
• Create profiles of your ideal clients. What attributes do they have? What makes them advice sensitive? Who do you like doing business with? Do they give you referrals?
• Answer the questions - What is a profitable client for you? What services/products do they use? What training and development do you need to be able to provide the advice that your clients need?
• Write a marketing plan that focuses your practice on targeting prospective clients with appropriate messages based on client feedback.

Now is the time to review your practice to determine whether you are focussing on 'advice sensitive' clients. This type of client represents the best way for you to maximise the potential of your financial planning practice. Working with 'price sensitive clients in today's high compliance environment and with the competition from the banks is likely to mean you are going to have to survive on low margins and be more vulnerable to shifts in the economy - particularly downturns.

In order to be an adviser that works with advice sensitive clients you need to ensure you have an advice based practice - this is covered in the next blog - How to ensure you have an 'Advice based practice'

Mark Laing - Business Coach