One essential factor in shaping your practice into the one that is right for you and your team is how you organize your service model. Determining the right service model for your target clients, team structure, and cost arrangements can make setting client expectations easier and running your practice smoother.
One of the best parts of building a successful financial planning practice is creating a business that reflects the way you want to work; with the people you want to work with. For advisors in the starting or building phase of their practice, it may not always feel like that. Taking on not-so-perfect clients or stretching outside of your comfort zone to retain business can be a necessity at times. Over time, however, a concerted effort to develop your practice into the one you dream of will yield results.
Just like how your advisory practice will grow and change over time, your process for onboarding and managing clients may change as well. It can be a valuable exercise to review how well your process is serving both your team and your clients.
For newer advisors, this may be something you need to review once per year. For larger and more established advisors, your process is likely a more well-oiled machine but can still benefit from a full audit every few years. If your team or your book of business has doubled in size, you may need to reorient how you manage and organize your and your team’s time.
If you are unsure whether you need to freshen up your process, no one knows better than your clients themselves. Taking time to review each of your client relationships is an excellent way to sit on the same side of the table with your clients and consider how to improve the way you service them.
Depending on the makeup of your book of business or the audience your business is targeting, you may need only one service model process, or you may need multiple. The more focused your practice is on a single niche, the more focused your process can be. As your audience broadens, you’ll have to contend with different needs and expectations. To serve each audience segment successfully, you may need a unique approach for each one.
Consider the different expectations, communication styles, and preferences of the following audiences as an example:
1. Retirees
2. High-earning Millennials or Gen X
3. Small Business Owners
Whether you are a one-man (or woman!) army or one piece of a large team, how you balance your client work and the business itself will depend on how much support you have available. Additionally, how you and your team interact with clients will also factor in.
Is your practice organized so that there is a singular, 1 to 1 relationship with each client or do clients speak to and hear from other members of the team in certain circumstances or for certain topics?
Many advisory practices that are organized as a 1:1 relationship model have full back-office staff and support, but they have structured client relationships in such a way that the clients are (or think they are) communicating directly with a single person 90%+ of the time. If this is similar to your practice, then you carry a heavy load of client trust and responsibility. Your clients probably see you as a close and personal partner in their finances.
It also means that depending on the size of your book of business, you should be able to limit the number of meetings with each client to between 1-4 per year. Training your clients to be organized and attentive to in-depth meetings a few times a year is essential. Excluding unplanned financial emergencies, your service model should be built around deep, meaningful meetings that are supported through other consumable or personalized content through the intervening time.
Onboarding clients to a service model like this will take significant time and emotional capital and strong connections are a necessity. For clients who have the time and the motivation, a multi-step and personalized onboarding process will lay the groundwork for lower-touch (but no less meaningful!) yearly support. Setting expectations, thorough data collection, and clearly dictating how clients work with you will limit nagging interactions, partially prepared clients, or short ad hoc meetings.
Spreading the responsibility of client meetings and communication among a variety of team members will take the pressure of a single advisor to be a jack of all trades for client needs. The benefit of this type of model is no single team member is carrying the relationship. Therefore, the clients may feel a more general sense of loyalty to the firm compared to a single person.
In a team-based model, a client will meet and work with multiple individuals within a firm. When properly on-boarded, the clients should know who the right person will be to manage certain aspects of their relationship, whether it is portfolio questions, administrative needs, or financial planning questions.
This structure will allow for more meetings per year for each client, and more specialization for each advisory team member. Given the specialized focus of different team members, clients may have shorter but more frequent or ad hoc meetings to tackle specific needs as they arise. The hub and spoke model can fit well for clients who need higher-touch coverage but still gravitate towards having a single point of contract or relationship manager.
Financial planning is drifting from its traditional AUM-based fees as clients bristle at pooled asset management costs and more advisory firms seek to differentiate themselves. To make the most of your chosen arrangements, and meet your clients’ needs and expectations, you should align your service model with how you are paid.
Charging a percentage of Assets Under Management is still far and away the most common method for collecting fees for financial advice. Clients understand it, but still inherently know how costly it becomes over time. Fee compression has not come as quickly to advisory services as it did for funds and trading fees, but it will happen soon as more fee-sensitive Gen X and Millennials grow wealthier and become the newest target clientele.
Building a service model around the AUM fee structure necessitates a focus on the management of the client assets. Poor performance here will negate much of the harder-to-measure financial planning benefits. Typically, the annual or bi-annual portfolio review meetings will need to be the core focus of annual client management. Support and review of a financial plan provides additional value to retain clients.
Many more clients are looking for flat or fixed-fee advisors because of the desire for cost transparency. Some have left the AUM model feeling cheated and want to limit fee-creep while others have never worked with an advisor before or can’t because they don’t have the minimum assets required.
Regardless of the reason for a client focusing on this fee structure, a flat or fixed-fee advisory practice will usually want to skew towards more intensive financial planning. Asset management may or may not be involved since the earned fees aren’t tied to the underlying assets. The hardest part of this model will be constantly demonstrating value as clients will be acutely aware of the costs, especially if it is being invoiced or debited from a bank account. For those clients who are interested in asset management, taking custody and debiting from the assets will provide both a stickier client and remove the constant reminders of cost when fees are taken.
For this model, creating a detailed and process-driven onboarding with ongoing communication and checkpoints will keep clients engaged. Automation and predictability will be key success factors, but only if all new clients are crystal clear about when and how each type of planning will be addressed. It is all too easy to slide into a service model that is reactive to every client’s whim for fear of losing a client. This is especially true for clients in their 30s and 40s. The retainer model appeals to younger clients who are used to having on-demand and personalized support in other aspects of their tech-driven lives. Balancing ongoing support with the capped fees is a balancing act that requires choosing clients wisely.
Hourly or project-based work necessitates a more fluid service model even if it is created parallel to either an AUM or Flat-Fee structure. Many advisors will take on short-term work to supplement their retained book of business when a client isn’t interested in a long-term relationship.
Taking on this type of work will be different than managing an ongoing client relationship. Rarely will a client need ongoing management of assets, and often, asset management or portfolio construction are secondary. Most often, a project-based service model is loosely structured to accommodate a mutually defined set of deliverables between an advisor and their client. Unlike other cost arrangements, working on hourly or project-based work may require a detailed roadmap of each party's responsibilities, deadlines, and success checkpoints.
Check out our sample client agreement for a Project-Based Planner.
Innumerable factors could impact your choices on how to create a service model. Considering how you currently run your practice and how that may or may not mirror the way you want to run your practice will give you insight into what parts of your process need to change.
When making changes to your practice, you may find some clients do not agree with this new direction. Weigh the risks but know that organizing your practice your way is likely to continue to retain your best clients and attract more of the types of clients you work with best.