Wealth managers might find fewer clients may be better business

We believe bigger is better except when it’s not. We have seen that wealth management practices sometimes feel pressure to add clients in order to grow their bottom line. But fewer clients may be the right route to a profitable roster. According to Practice Innovation Index (PII) respondents, top-performing wealth managers are prioritizing personalization, segmentation, and consistent engagement, forgoing roster size in favor of quality service. How are they reaping the benefits?

Optimizing engagement strategies

Better client service in our experience strengthens relationships and drives long-term client loyalty. But we believe more individualized attention necessitates fewer clients. Financial professionals manage 162 clients on average according to PII data. That number drops to 126 for top-quartile managers who serve high-net-worth households. Each individual client, on average, is more profitable.

A smaller client roster may offer advantages. It may free up time and resources to serve those clients. Half of all top-performing practices engage clients at least eight times per year, sometimes more, according to PII respondents. PII data indicates about 20% of top practices are in touch on 11 or more occasions each year. That’s in our view a striking difference from bottom-tier practices, who report contact with even their best clients no more than five times per year.

High-level engagement is, in our view, a point of differentiation. That engagement may range from long-term planning to regular check-ins to periodic reassurances in a bumpy economy. A wealth management firm might also provide boutique services like tax planning and trust services, for example. And then there are the unique issues that generally arise during a financial professional-client relationship.

In our view, practices that hope to maintain high engagement must develop strong servicing models. An ensemble style, with defined roles and specialists to perform functions in line with their expertise, may help support this strategy. A pod-based service structure assigns a team of financial professionals to serve a set of clients. While either approach may reduce contact between a specific financial professional and a specific client, both may allow for a closer relationship between the firm and a client.

Segmenting and personalizing service

According to PII respondents, top-performing wealth managers are prioritizing personalization. Among them, 92% offer a personalized or customized service model, compared to just 30% of survey respondents who use a generic approach. The goal, in part, is to give a differentiated experience, which may strengthen a relationship and lead to long-term client loyalty. Segmentation, dividing clients into groups based on key attributes, might be the answer. This sort of grouping may benefit both wealth managers and clients.

Segmentation may help wealth managers more effectively guide their clients. Smaller client groupings may allow for deeper insights into the specific needs of each group. The financial professional may then work to effectively communicate with messaging that resonates and improves engagement. More effective service can also evolve to be more efficient with standardized yet personalized strategies. Customized guidance may be delivered in less time, and resources then reallocated where they might be more profitable. Improved efficiency and service may help retain clients and push up revenue. And best of all, this approach is scalable.

Unsurprisingly in our view, segmentation may present significant upside for clients as well. More relevant guidance better aligns with a client’s goals and is more effectively delivered will likely not be viewed as a waste of their time. Quite the opposite, it may improve client trust in their financial professional. A satisfied client may enjoy peace of mind, knowing their financial future is likely in good hands.

Client segmentation may help wealth managers give each client the right amount of service. According to PII respondents, the best-performing wealth managers divvy up their roster using quantitative measures, like revenue and time spent, and qualitative measures, like life stage and behavioral profile. Such groupings may allow wealth managers to align goals across clients. They may then give more personal and relevant guidance to more people. The goal is that relationships improve, trust grows, and time, overall, is better spent.

Improving engagement with technology

Technology, and the digital engagement it enables, matters in the financial professional-client relationship. While it’s standard across the industry, we have seen that expectations have been rising and use can vary. According to PII respondents, almost 96% of top-tier practices hold virtual reviews and use video conferencing as compared to 60% of bottom-tier practices. According to the PII data, leading practices also tend to give clients access to research platforms (Morningstar, Bloomberg) and portfolio analytics tools. Customer relationship management systems (CRMs) may help wealth managers personalize messaging and service models by segment and stay consistent in their communications.

Technology may also serve the firm and ultimately the client in less visible but no less important ways. Segmentation tools that categorize clients by various metrics may help support personalization. Financial planning software may help serve financial professionals when modeling scenarios and forecasting outcomes, while portfolio management tools may help keep portfolios balanced and optimized. Advanced analytics may help manage risk, help identify possible situations and help adjust proactively.

We believe technology is more than a tool for operational efficiency; it may help drive differentiation. We have seen that leading practices leverage technology thoughtfully and deliver convenient and high-touch client experiences. Firms that invest in advanced digital capabilities, portfolio analytics, and research tools are in our view more equipped to deliver better service at scale, meet the expectations of increasingly tech-savvy clients, and position themselves as partners in their clients’ financial lives.

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