IFAs, profitability and the 'Pareto Principle'

Well done on making this public

Well done Bradbury Hamilton on publishing these figures for all to see. Segmentation of clients is the foundation stone for success in any business in any industry - this is not an IFA specific issue. Our own Business Fitness Report data shows firms that do segment 'effectively' have a profit per principal that is 137% higher than those that don't. Effective segmentation involves identifying the different types of clients within your business, and matching services to their primary needs. It is this level of detail and customer care that leads to increased profitability. I'm afraid I disagree strongly with Harry Katz on this one; however good the clients are that come into your business there are always A, B and C class clients. Segmentation is a relative exercise within your client base (not an objective exercise) and also a moving feast which is updated year on year.

Posted by: Brett Davidson

Breakthrough

This is very interesting - so much so I feel it should be given a jazzier name than 'segmentation link to profitability'. I think something like The Pareto Principle has a nice ring to it

Posted by: Richard Ross

Well Done Bradbury Hamilton

At some point in time all of these charitable IFA's, of course pushed by the regulator under whatever scheme it wants next will end up in the poorhouse or retired. The FSA's remit is for everyone that want's it should get advice and of course if the adviser can make it pay that's good. However it is not really sure if wants the adviser to profit, shame but there it is. On the other hand, we all want to be remunerated for the work we do and the business risk we accept (4 year clawback terms and ongoing liability for advice etc etc) and this should be a given. Having said that no other business provides a service for nothing and nor should it be expected to. My suggestion is this, apply the 80/20 rule to your clients, sack the 80 that do not pay/will not pay enough and focus on where the income is. This way your business will survive and thrive. By definition, poor people cannot afford advice and nor should they expect it. You can of course factor into your business plan the possible lottery win, but hope of course is not a plan. Perhaps the model has always been wrong and what is happening now will be for the good of the industry. Me, of course I am looking forward to it. Thank you Bradbury Hamilton for your honesty in this instance, but we all knew that anyway. Richard Smith IFA and IFA Tech Expert http://www.theinternetconsultancy.com

Posted by: Richard Smith

Genocide of the less affluent.

Poor people should not expect advice why? The commission model means they can avail themselves of good advice and the IFA still gets paid.Its worked for 200 years.Why not go the whole way Richard and just massacre the peasants. Harry you're just perfect!

Posted by: Peter Taylor

You don't have to like something to agree with it or do it

We've segmented our customer base on several occassions and are just going through another segmentation. It does not mean you have to throw the people out on the streets and refuse to speak to them, but by segmenting using a mixture of identifying profitable business and enjoyable business (sometimes profitable and enjoyable can overlap) means you can be clear and fair in managaing people's expectations so that someone who is not paying you a lot does not expect too much. And you make sure you do not overpromise to deliver. The simplest split for us, is the one the F-pack needs to recognise i.e. the difference between a client and a customer according to the dictionary i.e. client = Ongoing professional service paid for by contract with the client which as an ongoing service is being provided means there is NO longstop until the client ceases to pay for a professional service after which 15 year longstop clock should start ticking and customers who walk in to your advisory "shop", are advised to do something on the day which is suitable ON THE DAY and that they should then (as with a dentist or Dr) get the filling checked every few years otherwise even the best job can become corrupted and with those, the longstop clock starts ticking the moment the service is delivered. There has never been an open debate on the longstop and I am hoping AIFA as well as the Adviser Alliance finally open the eyes of the F-pack to their serious breahes of our Human Rights and why lack of clarity is actually counter productive. Infinite liablity is not acceptable especially when you consider none of the qualified accountants (lesley Titcombe for instance) or solicitors at the FSA have set IFAs an example by waiving their own professional rights to a longstop. The FSA don't understand this as they don't understand what an advice, non-advised and execution only actually is and tehrefore many of them don't actually udnerdtand the segmentation of IFAs they need to think about before trying to enforce something like the RDR on all segments

Posted by: Phil Castle

Thank You

What a great article. It's put into words (and figures) something I've been banging on about for ages (I'm that boring one in the office who drones on about RDR). cheers Matt

Posted by: Matt Cook