Sacred Cows and How They Hamstring Growth and Profit
The unholy power of ‘sacred cows’ on financial services practices.
If I had a dollar…
For every owner of a successful financial services firm that told me they couldn’t change something that had made them successful at the beginning of their career…
I would be fly fishing now instead of writing.
There are many sacred cows in our industry, but three of the biggest are:
Retaining Legacy clients that are no longer profitable
Keeping on your team employees who are not performing at a high enough level and/or cannot function in a higher-end service model
Never expanding/changing your business model (not charging enough for planning fees)
Legacy clients are a real killer and a pretty accurate prescription for inevitable burnout and staff turnover.
Often, in pursuit of higher payouts, advisors I have interacted with have held onto these clients well beyond their ability to manage them.
Here are a couple of inconvenient truths:
The time it takes you to get to the higher payout while maintaining unprofitable clients is longer. If you gave away or sold the bottom third of your client base, I bet you would lose less than 10% of your revenue. In addition, once you get to the breakpoint for comp you will not be over capacity and far less likely to (a) enjoy the money and (b) be positioned to get rid of the non-ideal clients (got to keep that payout baby)
You will unconsciously limit your ability to grow because you know you are beyond capacity for client service, and will have to make compromises to get there either through lower service or increased staff expenditures.
You will not be running an organization with a clear client focus and evolving service standards. Practice how you want to play.
You will not have time to prospect effectively for ideal clients.
Your team will be far more likely to burnout and turnover as they will have to shift from different service levels too much.
Some cool truths:
Neither you or your clients signed lifetime contracts. I bet clients have left you for some other advisor that you consider to be inferior. You don’t own them and they don’t own you.
Updating your pricing structure will make the process of moving non-ideal clients much easier.
You don’t need to tell people they don’t have enough money (AUM), instead, share with them your minimum annual fee. (Stop being a chicken and sell transparently instead of hiding behind your quarterly fees)
When you focus on ideal clients and only ideal clients…you will get better at talking to them and showing them why they should choose you.
Finding and retaining key employees is always a challenge.
So many times, I have been told by clients who say they want to grow, that under no circumstances can we make adjustments to their staffing. In almost all cases, there are one of two needs to be adjusted:
Underperforming staff that needs to be let go. I get it, firing people isn’t fun.
Overperforming staff that are overwhelmed with too much work and we need to hire another staff member.
I have a really simple solution: Don’t hire average people.
I was on a board once where I was clearly the outlier. We were discussing retention challenges with staff in an organization that was a private alternative to a mostly public solution. I asked what our compensation model was and was informed that we paid the average salary in the region.
You might be able to guess what I asked next:
Where in our mission and vision do we state that we are performing average work?
If you are looking to work with ideal clients and deliver exceptional service…you need to recruit, hire, onboard, and reward your staff accordingly…or suffer. The best employees are probably already working in the industry and you need to compete to win them to your team.
Paying an extra 20-40k in salary to hire someone who is already exceptional is only really one or two new ideal clients right? Don’t be a tightwad and sabotage your growth and personal life.
Your fees.
You need to charge planning fees and you need to charge more for them…unless you suck.
That’s right. My best clients are charging 30k or more per year for their planning fees with ideal clients for one simple reason: they are worth that fee and their clients can see exactly why.
Start where you are. I always ask that new clients double what they are currently charging for financial planning when they come on board. There are two major reasons for that:
After they do so and are successful…my consulting fees are generally paid for in short order.
The conversation about how to do so guarantees that the client makes the necessary changes internally and externally to believe they are worth getting paid what they deserve and that we have the structure and systems to show that to clients and deliver above that standard.
Let’s go deeper on pricing.
One of the most awkward and dangerous conversations most successful financial advisors have is with prospective clients who have been referred to them by a current ideal client and/or core COI (center of influence) partner. Especially when the prospective client is not a good fit for your practice from a fee basis.
What do you say?
If you are running a business model (like most advisors) where your fees are a percentage of AUM and billed through the clients' quarterly/monthly statements as opposed to the client paying you directly…this is the hard spot.
Since you don’t have a transparent fee minimum per year you need to figure out how to show the referral that they don’t have enough AUM to generate your minimum fees without telling them they are too poor.
Not fun.
I have seen dozens of variations of this conversation and suggested a bunch of my own, but no more.
I recommend to all my clients that they communicate to their current clients and especially prospective clients that they have a minimum annual revenue per client to meet the demands of their business and service model. You can get to that number on your own no matter how your firm of record has you billing clients. If you aren’t sure where to start, just comment below and I will help you out.
The key is to be transparent and have a reason why. Now, instead of trying to figure out how to tell referrals they don’t have enough assets to afford to work with them, you can just tell them what you charge per year “all in.” This allows them to decide whether or not that is something they want or can afford and dramatically eliminates risk.
What is the catch? You have to be worth it. You need to have done the work to detail out what you are doing for clients on an annual basis and show why it's worth it to the right clients.
The beauty of this kind of sales (yes, sales) is that you are approaching every meeting with confidence and transparency. Ideal prospects are going to be able to afford you and they will be able to see why you are a perfect fit for them.
Of course, if you are hiding how much you charge clients for not very much service…you are an endangered species anyway. AI is going to take you out soon anyway as your entire business model is based upon client ignorance and that is a strategy I am not going to hang my hat on, and neither should you.
The enemy is in the shadows…live in the light.
In conclusion: you are awesome.
Start treating yourself like that and make sure you are working toward a client base that is ideal, a staff that is exceptional, and a service model for fees that allows you and your team to grow and prosper.
I focus on the financial services industry, but this stuff should be transferable to any high-value professional services firm.
Thoughts and questions? Feel free to comment below.
I know that successful financial advisors face unique challenges as their career matures. My goal is to help people like you manage the transition from producer to successful business owner while enjoying life now. To learn more about how we do that, subscribe to Can I Borrow Your Car on Substack.
You can also:
💡 Connect with Mike on LinkedIn
🔗 Visit Can I Borrow Your Car website
🔗 Explore Strategic Referral Team website
📕 Purchase your copy of Can I Borrow Your Car?
🎙 Subscribe to the Why Should I Refer You? Podcast