Plotting a course toward long-term business success

Andy Coleman on why a clear business strategy will ultimately hit the target with clients.

The last piece in this series looked at the questions business owners need to ask themselves to properly chart a course for success.

Hopefully, now you’ve got an idea of what direction you want to go in, how do you go about getting there?

The ‘how’ is a crucial question. In a 1999 Fortune magazine article ‘Why CEOs fail’, Ram Charan and Geoff Colvin famously stated: “Organisations fail to successfully implement strategy not because of bad strategy but because of bad execution.”

It has subsequently been claimed that nine out of ten strategies fail because of poor implementation.

Clear strategy

What’s more, the Financial Conduct Authority (FCA) is taking an increasing interest in how firms choose to do things. In its 2014/15 Business Plan, the regulator has made clear its intention to assess firms’ strategy, planning and culture, and how this affects client outcomes.

Being able to articulate a clear strategy to achieve your business objectives has become a regulatory, as well as a commercial, imperative.

While strategy implementation is an art as much as a science, to be successful most experts agree it needs to give equal focus to four critical areas of a business, namely clients, processes, people and financials.

Here are four steps that can help to make the process manageable, thorough and effective.

  1. Identify your client proposition(s)

In the first part of this series, we talked about determining your brand proposition and the types of client you hope to service. Now it is time to break that down and determine the precise client propositions you will offer.

To help (see below) we have included the four main servicing categories that clients fall into.

Figure 1 Client proposition types

Client service features:

  • Self-directed: No advice provided; all servicing done remotely (online)
  • Transactional: Advice provided ad hoc; reviews, updates and guidance on request only
  • Ongoing advice: Full financial planning; wealth management focus; reviews provided on an agreed frequency
  • Full relationship: Full financial planning; high technical input; servicing on a regular and on-request basis

While larger firms may have the resources to offer all four, smaller firms may choose just one or two. But the key is to be clear about what you can (and want to) offer. Resist the temptation to try to be all things to all people in a bid to capture the largest possible market. As Figure 1 shows, you may find that one particular proposition accounts for the lion’s share of your annual income and this is where you’ll need to focus.


  1. Define the delivery process

For each client proposition, you need to define the step-by-step process that will be required to ensure high-quality delivery – from the initial meeting to annual reviews to client communications.

Each element can involve a surprising amount of resource. For example, simply preparing for a client review meeting can involve at least five pieces of work, such as contacting the client to arrange a date and time; sending written confirmation to the client (by email or letter); including details of what to bring; giving the client file to the financial planner; and conducting a pre-meeting review of the client’s portfolios.

Each step of each process involved in a proposition should detail:

  • Who (by role) in the firm is responsible for the step
  • What process, tool or technology they will use
  • How long it should take a competent individual to perform.

It may seem time consuming to go into such fine detail. However, breaking down each element of client service into its constituent parts will provide essential clarity in terms of:

  • What each client proposition can realistically provide to a client initially and on an ongoing basis
  • Individual responsibilities and standards of performance
    • The cost of delivery per stage in the process
  • How and where each process could be made more efficient (e.g. through email or automation).

It’s good to engage everyone in the business in this process so no step is overlooked. Being involved can also encourage each person to take ownership and see how they fit into an efficient delivery framework.

  1. Determine the cost of delivery

Once the cost and time involved in each step has been calculated (accounting for any improvements or efficiencies you may have identified), it is possible to work out the total cost (in pounds and pence) of delivery to the client.

To be sustainable, this must include a margin for profit and future investment in the business. You should see a marked difference in cost between propositions, with the cost of delivering a transactional service being lower than a high relationship-based proposition, for example.

Remember that VAT may need to be applied where a service is not directly linked to intermediation/ implementation of a product.

This charge should be applied in addition to the resulting price of your costs plus margin.

Another contributory factor to cost and price will be the chosen approach to investment management. The more bespoke the offer, and the more process retained in-house, the higher the cost will be to the business (and therefore the client). For some firms, risk-targeted third-party model portfolios may be an appropriate and more cost-effective solution.

  1. Segment your clients

By now, you should be in a position to work out which of your existing clients have the wealth profile to pay the required fee for each of your chosen propositions.

For example, if you have calculated that the total cost of delivery (including profit margin and future investment) of an ongoing financial planning service is £2,000 a year, this will represent a higher per cent of ongoing fee to a client with £100,000 of investable assets than a client with £500,000. Approaching this analysis from a cost-to-serve plus margin perspective facilitates greater transparency for clients and reduces the likelihood of cross subsidisation.

Figure 2 (see below) shows how your whole client bank can be assessed so you can work out the annual recurring income they provide to your business and how this matches up against the cost of delivery of each of your agreed propositions.

Figure 2. Client segmentation step-by-step

Step 1 – Create a spreadsheet of all your clients in descending order according to the annual recurring income they generate. Remember to tag clients where they are married/partners/related as this may be relevant once you decide your future engagement strategy.

Step 2 – Calculate the total annual cost of delivery of each of your client service propositions.

Step 3 – Segment clients by the client service proposition whose annual cost they comfortably meet.

Step 4 – Calculate what proportion of your overall income each client proposition is likely to deliver (cost of annual service x no. of clients in that proposition) – this will tell you where your client-servicing focus needs to be.

Step 5 – Draw a line under those clients who can afford your minimum-servicing proposition to identify those remaining clients who fall ‘below the line’.

Step 6 – Segment clients who fall below the line to identify clients who:

  • Need to be retained for valid reasons
  • Have future potential
  • Have little future potential and need to be managed in the short term/managed out.

This should quickly tell you how your clients could be segmented into each of your chosen offerings.

Where clients don’t meet the benchmark for an active on-going advised proposition, you can explore whether a transactional or self-directed approach better suits their needs or preferences. Indeed, some clients with the wealth to fit into an active advised solution may even prefer to take a self-directed approach. This exercise will also reveal what proportion of your clients account for what percentage of your annual income – and therefore where your client-servicing priorities need to be focused.

It is a fact of life for many firms that the top fifth of their clients will account for three-quarters or more of annual income. Hard questions have to be asked about how the lower remunerating clients should be serviced. But try to weigh this against an individual’s circumstances.

After all, today’s young professional may be the high-net worth client of the future.

A balancing act

What every firm quickly discovers is that implementation is a balancing act. Plenty of fine-tuning of proposition, process and cost will be required in tandem to get it right. By investing time to look at all these areas in an integrated way, your firm is far more likely to deliver effective execution and accomplish a strategy that is clear, logical and set for long-term success.

Andy Coleman is director of distribution at Cofunds