The Supernova Effect: Reducing Your Client Base for Growth
Those of a certain age likely remember buying music on cassette tapes. Over the years, you watched as those shoe boxes of cassettes and towers of CDs turned into hard drives of mp3s. Like many, you may be reluctant to let those outdated tapes or CDs go—even the music you don't necessarily like—but at some point, you know you have to clean house.
Weeding a music collection is surprisingly similar to 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—you needed to get your practice off the ground! As your business matured, you became more specific about your ideal client profile. But if you're still hanging on to clients who don’t fit into your "ideal" view, however well intentioned, this mind-set can impede your business's growth.
Scaling Your Practice, Supernova Style
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 star.
Knapp's strategy is a metaphor for this supernova life cycle. After accumulating many small clients, you may find yourself in a similar state of collapse—overwhelmed by trying to service your oversized book. And without change? Your business will become unsustainable.
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 services to your clients. Plus, it will give you time to build trusting relationships, the foundation of any successful practice.
Selecting and Segmenting Your Client Base
Making the cut. First, you'll want to screen out clients based on household production. 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. For clients who don't quite fit, help them find another advisor, perhaps a junior advisor in the firm.
Implementing Scalable and Repeatable Processes
12/4/2 contact. To create a consistent client experience, Knapp's 12/4/2 system focuses on ensuring that processes are scalable and repeatable. He recommends following this contact approach for each client:
- Make 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.
Knapp also suggests freeing 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.
Building the Ultimate Book Through Referrals
In the supernova model, numerous client interactions are encouraged, including communication regarding referrals. 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 closing 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.
Option 3. Cultivate 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.
Securing Ideal Clients for the Long Term
Simply put, relationships based on quality service, rather than on investment performance, lead to greater client satisfaction. That’s what the supernova model is all about. By creating opportunities for yourself to set and exceed client expectations, you can build and maintain relationships that endure.