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Do you know the real cost of your clients?

by Elsa Buchanan on Mar 18, 2014 at 07:30

‘This means you are writing off a whole day, but unlike a lawyer or an accountant, you are not charging them for your time.’

Another cost that is omitted from cost per client analysis is hospitality, Lally said. Again, it is difficult to evaluate the exact costs of entertainment per client, as only a ‘small percentage’ of clients actually trigger them, he explained. ‘It also tends to be small groups of 20 to 30 people, so [it is] not easy to say who generates what. Some clients cost me thousands, some cost me a phone call.’

Richard Allison, regional intermediary sales director at Brooks McDonald, agrees. He believes ‘a good DFM will know what custody costs are, or what dealing, reporting, staff, property costs are’, but that in many cases, firms tend to omit property from their cost base.

‘It’s not just about what you do – because the business is paying for the property in which he sits. That’s all part of it, but sometimes that cost gets excluded,’ he said.

While most will agree that high net worth clients are a ‘sweet spot’ in the industry, small does not have to mean unprofitable, and while ultra high net worth clients may mean more revenue, they may not mean more profit. 

In some cases, wealth managers have taken steps to address how they can service certain types of client more efficiently, especially when it comes to addressing smaller clients.

Companies looking to exit a specific client segment, or carve out a different business model to service certain client segments efficiently, need to be very careful. Some elements cannot be priced in, Green warned.

‘If you try and segment the client purely on the size, you’re not looking at whether they have relationships with larger, key clients, including family, business partners or directors of a corporate account,’ she added.

Firms must also look at the likelihood of different clients being able to grow their portfolios – for example, differentiating a young person starting out in a potentially profitable career from a retired client in drawdown.

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1 comment so far. Why not have your say?


Mar 18, 2014 at 10:26

I get the problem.

Was there a solution in there somewhere that I missed?

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