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A 3-tier approach to client service

Many advisory firms working with retirees today are looking at their client base with concern. Even if they…

Many advisory firms working with retirees today are looking at their client base with concern. Even if they are bringing on new clients at a good clip, a percentage of those new assets is required just to make up for the depleting assets of retired clients. And some day, if the adviser hasn’t implemented a multigenerational outreach program, the assets will walk out the door to another adviser.

When faced with this situation, firms often look to a younger clientele as a possible solution, whether that be their clients’ children and grandchildren or “younger” professionals in their late 30s and 40s. This can be a smart strategy since tomorrow’s high-net-worth and mass-affluent investors are today’s students and “accumulators.” The problem is that clients in these demographics don’t have the same asset levels as retirees, making it very difficult to service them profitably … or maybe not.

The problem isn’t that clients with few assets are inherently unprofitable, it’s that firms try to service all clients the same, which makes some of them unprofitable. If a firm wants to serve younger clients, it has to develop a multitiered service model.

When segmenting clients, some firms will define what level of service each client will receive, including the number of touch points and meetings thoughout the year. But these service tiers may not be communicated to or understood by the client, which leads to confusion in expectations.

If you are going to be working with different levels of clients who require different levels of service, you need clearly defined service models that are communicated to a prospect at the beginning of the relationship, and in all of your marketing materials, including your website.

THREE SERVICE TIERS

My recommendation is to develop three different service tiers that build on one another. For illustration purposes, we’ll call them bronze, silver and gold (Side note: don’t use these names since they are clichés). We’ll start with the easiest one: gold. Think of your very best, or ideal, clients and put them in the gold category. Now list all of the services you provide, including how many meetings, phone calls and e-mails as well as technology you provide. Write down how you price this service, which is probably your current pricing structure. Your gold service tier is now complete. See, that was easy!

Now it gets hard. You need to think first about the other two groups of clients you want to serve. For this example, we’ll say silver is mid-career accumulators (ages 35-50) and bronze is young family members of your clients (ages 18-34). Now think of the services these types of clients need. There may be some overlap with your gold-tier services and there might be some completely new services such as debt management or college planning. List these services, including the number of annual meetings, phone calls and e-mails under each of the other two levels.

Now put down an annual minimum fee you would need to charge for these clients to be profitable. Is it a reasonable fee that clients would find value in paying? If not, you need to consider limiting the services offered, shifting the frequency and method of communication, looking at technology to automate certain processes or assigning junior-level staff.

Let’s say you have established a fee of $1,500 a year for the bronze tier. You wouldn’t be able to charge an appropriate AUM fee to make up that amount until the assets reached about $150,000 — an unlikely amount for someone in their 20s. But if you charge an annual retainer that could be paid by credit card at $125 per month, you are in business. You will still want to charge AUM fees when you can, but you may have to get creative in your pricing to hit your minimum fees.

Once you have clearly defined your three service tiers, communicate them to your prospects. Include the different service packages on your website and have a one-page sales sheet. Show not only the different services and pricing, but for whom it is designed. The point is not to have new clients choose their service level; you should put them in the level that is appropriate for their situation. By showing them your service tiers, you tell them you work with people like them, set the expectation for the level of service they will receive and set the future expectation that if they want a higher level of service, or to reach a certain milestone, their pricing and service level will change, as well.

Serving younger clients doesn’t have to be unprofitable. By establishing a tiered service model, you can serve and develop relationships today with the people who will be high net worth tomorrow.

Kristen Luke is president and chief executive of Wealth Management Marketing Inc.