Scaling Your Financial Advisory Practice, Supernova Style

Posted by John Reid

September 27, 2017 at 1:30 PM

scaling your financial advisory practiceWhen I was in fourth grade, I bought my first album on cassette. So began my music library! Over the years, I've watched shoe boxes of cassettes and towers of CDs turn into hard drives of mp3s. Although I'm reluctant to let anything go, even the music I don't necessarily like, at some point you have to clean house.

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I'm sharing this story because I think you might find that weeding a music collection is quite similar to the process of scaling your financial advisory practice. In the early years of your business, maybe you weren't so particular about the type of client you brought on. I would guess that you've likely gotten more specific about your ideal client profile since then. But I would also guess that you're hanging on to clients who no longer fit that "ideal" view. If so, you're certainly not alone. But however well intentioned, this mind-set can impede your business's ability to grow.

If you've reached the point where it's time to weed, I suggest considering a model offered by Rob Knapp in The Supernova Advisor that focuses on quality of clients, not quantity.

Reducing to Grow: The Supernova Model

A supernova develops when a massive star exhausts the nuclear fuel at its core. This unsustainable mass begins to implode before reaching a critical point where it explodes into a bigger and brighter burning star.

Knapp's strategy is a metaphor for this supernova life cycle. After accumulating a large number of small clients, you may find yourself at a similar state of collapse—overwhelmed by trying to service your oversized book. And without change? Your business will become unsustainable.

To reach that critical point where your business can explode into growth, The Supernova Advisor explains that you must reduce your client base to a manageable size in order to grow. It may seem counterintuitive, but reducing your base will allow you to increase capacity and deliver more comprehensive and personal services to your core clients. Plus, it will give you time to build trusting relationships, the foundation of any successful practice.

12/4/2 contact. The supernova model isn't just about the number of clients. It also recommends the 12/4/2 contact system:

  • Each client should have 12 scheduled contacts per year.
  • 4 of those contacts should involve quarterly reviews.
  • At least 2 of those contacts should be face-to-face meetings covering a broad agenda.

This communication schedule may be more than you and your clients are used to—making rightsizing the client base even more critical.

How to Refine Your Client List

Making the cut. First, you'll want to screen out clients based on household production (although production is only one of many possible screens). The process described in The Supernova Advisor is similar to the first step in developing the tiered service matrix recommended by Commonwealth's Practice Management team, whereby clients are segmented into categories (e.g., A, B, C). Well-developed client service tiers can bring focus and scalability to your practice, helping to improve service standards and to better define your niche.

Here, Knapp recommends the following guidelines:

  • Limit your client list to a maximum of 100 ideal clients.
  • Increase your investable minimum each year, reassessing your book on an ongoing basis. When a new ideal client comes on board, he or she should replace a client from the bottom quartile. That way, you'll be well positioned to spend your time with the most profitable clients.

Communicating the change. After making the cut, it's time to reach out to those clients who made it and those who didn't.

With ideal clients, the goal of this communication is to help them understand how their experience with your firm will improve—especially if the 12/4/2 system results in more frequent contact. Of course, not every client will be comfortable with this level of contact. But, as Knapp explains, you should articulate that this is the type of practice you want to lead. Your clients will decide whether they want to stay.

For clients who don't fit this model, help them find another advisor, perhaps a junior advisor in the firm.

Create a Consistent Client Experience

To create a consistent client experience, Knapp's 12/4/2 system focuses on ensuring that processes are scalable and repeatable. He also suggests the following:

  • Free up your time to concentrate on clients' needs by delegating the scheduling and operational tasks to staff.
  • Instruct staff to filter your calls and ensure that they can recognize situations that require escalation.

With a leaner client base and delegation, you'll have the time and energy to focus on the planning process with clients. In turn, these clients will be a potential source of high-quality referrals.

Clients as Part of the Referral Team

In the supernova model, numerous client interactions are encouraged, including communication regarding referrals. With this in mind, here are three options for making clients part of your recruiting team.

Option 1. Simply explain to your existing clients how they fit the mold of your ideal client.

Option 2. This option comes from Bill Cates's book, Get More Referrals Now! His VIPS process (i.e., "Value. Important. Permission. Suggestions.") recommends that you close face-to-face meetings with: "What did you value from today's experience?" When clients express that they are highly satisfied, ask them if they'd be willing to participate in a brainstorming session and to suggest others who would value that same experience. Even if it doesn't result in any leads, you're giving your clients the opportunity to think about and articulate why they valued the experience.

Option 3. Knapp suggests cultivating a referral network with other professionals. To begin, ask your clients whether they have good relationships with their accountants or lawyers:

  • If yes, request an introduction to explore ways to create synergy around the financial plan.
  • If no, be ready to suggest someone who may be a better fit.

Sticky Relationships

Numerous studies suggest that, in terms of client satisfaction, service outweighs investment performance. When relationships are based on performance, clients tend to be happy when markets are up. But in a down market? These relationships can deteriorate quickly. In the supernova model, however, relationships are based on a high level of client contact and service—and you have the opportunity to set and exceed client expectations. This can lead to sticky relationships that endure, regardless of market conditions.

Have you taken steps to scale your financial advisory practice? Would you use the supernova model? Please share your thoughts with us below!

Editor's Note: This post was originally published in May 2015, but we've updated it to bring you more relevant and timely information.

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Topics: Practice Management

    
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