The key is creating a strategic feedback loop so you know what your clients are thinking.
Editor's Note: This is the second article in a three-part series.
While many advisors have refined the strategic
planning process in their businesses, there is one piece of the puzzle
that is missing-a strategic feedback loop. We believe that, going
forward, advisors will need to institutionalize a client feedback
process that will test the validity of their strategies against client
needs and expectations. Without that feedback loop, you run the risk of
working very hard to implement a stale or ineffective strategy.
The fact is, if we implement a strategy but do not test its effectiveness on an on-going basis, we are assuming that nothing will change-in the industry, with our businesses or among our clients. We all know that isn't the case. Instead, we suggest that advisors embrace that inevitable change and conduct regular Strategic Audits of their businesses.
A Strategic Audit is a structured process of gathering data and feedback from your clients to allow you to assess if your strategy is still on track. It is, essentially, a client survey, but one with a very specific focus on the bigger picture issues in your practice, including how you are positioned, what your clients value and the role that you play in their financial lives. The process recognizes that your clients, collectively, can give you the best insight into the future of your business. Good financial management gives you critical information on how successful you have been in the past; a Strategic Audit tells you if you are heading in the right direction-a bit like strategic GPS.
Client Surveys And Strategic Planning
Your strategic vision comprises your offer (what you do for your clients), your target (to whom you offer those services) and your strategic differentiator (how you set yourself apart in the market). By definition, every strategy is unique. As a result, the key success factors for one advisor will be different than those for another. For example, the things that make a wealth manager successful will be different from those things that make an investment manager successful. And those advisors focusing on a niche market will need different skills and services than those who position themselves on the basis of a technical specialty.
So how do we gauge the success of these very unique strategies? In any business, it is critical to have the ability to look, simultaneously, in three directions. We need to look back at past performance, down on what is important on a day-to-day basis and ahead to understand the future.
Looking back is a powerful exercise to help us understand how well we have performed against our objectives. In a typical advisory firm, or for an individual advisor, there are four key areas that we need to evaluate on an ongoing basis:
Profitability. By tracking gross and operating profit, both in the aggregate and as a percentage of total revenue, you can determine if your strategy has resulted in profitable client relationships.
Stability. By tracking client attrition, you can determine if your strategy has created loyal client relationships.
Growth. By tracking growth (in assets, clients or revenue), you can determine if your strategy is resonating with your target group of prospects.
Productivity. By tracking productivity (number of employees, assets under management) you can determine if the resources in which you have invested (people, technology, etc.) are generating the necessary return, which also links back to profitability.
Clearly, then, a robust financial management system takes care of our ability to assess past performance and identify trends. That said, financial management (and all of the indicators above) are lagging indicators, which means that they are critical, but not enough. Lagging indicators will only tell you if a strategy has worked in the past. Has the strategy resulted in profitable client relationships? Has it delivered a high enough standard of service to keep clients loyal? Has it provided you with opportunities for growth? Are you able to execute efficiently?
But what of the future? We all recognize that even the most effective strategy needs to be reviewed, and possibly revised, in the face of changes in the needs and expectations of our target clients. Your clients, therefore, are a leading indicator of the continued success of your strategy. And that means that a systematic process to gather, track and use client feedback will allow you to validate your approach on an ongoing basis. There are two parts to a successful Strategic Audit: baseline indicators and custom indicators.
Strategic Audit: Baseline Indicators
Every advisor should track two baseline indicators: overall satisfaction, and comfort in providing referrals. Specifically, the questions would be asked as follows:
1. How satisfied are you with the overall relationship with this firm?
Provide clients with a five-point scale from very satisfied to very dissatisfied.
2. Are you comfortable referring this firm to my friends, family and colleagues?
Provide client with a five-point scale from completely agree to completely disagree.
The data combines to answer a simple but important question: How am I doing? These two indicators are common to all advisors and provide you with an all-important baseline to assess overall performance going forward.
Understanding client satisfaction recognizes that client needs and expectations may change over time. A change in average satisfaction may indicate that you are no longer meeting those expectations and, while it doesn't mean that clients are leaving, it could signal a need to assess possible changes. Similarly, assessing how comfortable your clients are in providing referrals will tell you, in general, if those satisfied clients will take action in helping to build your business.
Note that there are always exceptions to the rule. For example, you will find that some clients say they are satisfied, but are not loyal in the long run. You may also find that some clients are highly satisfied, but are not comfortable providing referrals. These anomalies don't reduce the effectiveness of gathering broad-based feedback.
Our research, based on a sample of more than 20,000 investors surveyed for our Client Audit program, shows that clients are, on average, very satisfied with their advisors. They provide an average rating of 4.7 out of five, with five being highly satisfied. Similarly, the vast majority of clients say they are comfortable providing referrals. In our industry research, 91% of clients selected a four or five out of five, suggesting a high level of comfortable providing referrals. That's good news for the industry but the averages tell you very little (nothing, in fact) about how your clients are feeling.
On an individual level you will want to watch for any shifts in your baseline numbers, in order to identify lurking problems or changes in client attitudes. These top-line numbers will tell you if there is a problem, but they will not tell you what the problem is and certainly will not tell you what to do. To get more detailed information, we need to dig a little deeper.
Strategic Audit: Custom Indicators
The custom questions should be designed to assess your unique strategy. The way in which you are positioned with your clients and prospects will drive your individual measurement criteria. How you are (or want to be) positioned in the minds of your clients will drive the questions that you ask. Let's look at a specific example.
If you are positioned as a wealth manager, it might be important for you to assess these factors:
The percentage of household assets that you manage will tell you if you have effectively positioned yourself as the primary advisor for your clients, and any downward trend will be a red flag.
If clients are working with other financial advisors, that will similarly tell you how you are positioned, and changes will highlight possible risk.
The percentage of clients for whom you manage family wealth, rather than just household wealth, will tell you if your strategy is enduring and extends to the next generation.
Client awareness of the full range of services that you provide will tell you how well you have communicated your positioning to clients.
How clients describe the role that you play in their lives similarly will give you important feedback on how well you are communicating your desired positioning.
Client value ratings on different services will tell you if there is a shift in the types of services that your clients will need.
The extent to which clients value a comprehensive approach to wealth management will tell you if you are on the right track with your strategy.
How clients feel you are performing on key aspects of service will highlight subtle changes in client perceptions and needs that may suggest a need to revise your strategic approach. For example, you might assess client perception on:
* the extent to which you understand their goals for the future;
* how successfully you "quarterback" all of their financial needs;
* the range of services that you provide;
* the extent to which you are proactive in managing the relationship; and
* confidence in the team you have built to deliver on the strategy.
On the other hand, if your positioning was linked to investment management, you would find that clients would need and expect very different things, and you might focus instead on investment performance, pricing, market knowledge and so forth. The right strategy is one that works for you, but recognize that each strategy carries different success factors. When it comes to measuring performance, one size does not fit all. By assessing those aspects of service that are specifically linked to your strategy, you can look forward to determine if you are still on track or if you need to improve service, manage expectations or, perhaps, change direction.
So a Strategic Audit is really just about defining what will make your strategy a success and then measuring the value you bring to your client relationships. Leo Pusateri, president of Pusateri Consulting and Training, says that understanding how clients perceive the value you deliver is a critical part of strategic planning.
"Successful advisors are able to articulate a 'compelling story of value.' They know the unique value that their company provides, the unique value of their solutions, the unique value of their team and the unique value that they individually provide. An advisor's ability to tell that story well is driven by having a clear picture of client perception . ... Don't be afraid to ask what clients value the most about working with you and to define or describe the real value you have provided in helping them to reach their wealth management goals," he says.
A Strategic Audit: The How-To
A Strategic Audit is simply a formal process of gathering and tracking specific information from your clients-a client survey with a focus. You can simply integrate strategic questions into an existing, ongoing client survey, or create a survey that focuses entirely on strategic issues. Conduct a written survey of your clients every 18 to 24 months and you will be in a position to create baseline ratings, and then track changes over time. Our first column in this series, in the July 2006 edition of Financial Advisor, outlined the key factors for a successful client survey.
It is accepted wisdom that measurement is a critical part of any successful strategy. Finding a way to assess your strategic performance and ensure that you are on the right track only confirms what we already know-that things change. The most successful businesses simply accept that as a fact of life and make sure that they have a way to stay on top of that change.
Julie Littlechild is the president of Advisor Impact and Rebecca Pomering is a principal with Moss Adams LLP. For more information on client surveys contact email@example.com.