You probably won’t have anyone ask you outright how deep your client relationships are, as it is blunt and direct.
However, acquirers are increasingly wanting to get to the bottom of this question with owners of firms contemplating a sale.
Acquirers today not only want to know how many clients you have and their average ages and where they live, but how “sticky” they are. One particular area of focus by the more discerning among them is spousal and intergenerational transfers.
Only 34% of women will remain with the family adviser after the death of their spouse or divorce
One question we ask is: “Of your clients who have died in the last five years, what percentage of surviving spouses/children have you retained as clients?”
Another is: “Of all clients over the age of 60, with assets you manage in excess of (say) £250,000, what percentage of their children are also clients?”
The answers to these questions will inform the acquirer about how likely it is funds will remain invested after the death of your clients.
Assets often do not remain invested when a spouse dies – statistically, the male. Research undertaken by Schroders found only 34% of women will remain with the family adviser after the death of their spouse or divorce.
In 2020-21, HMRC statistics indicated £15.7bn of assets was transferred to surviving spouses, when 73% of the widowed population were women
Why is this? Often, subconsciously, the financial planner, most likely male, focuses on talking to the male. That stereotype is changing and intermediaries who hold client functions will invite the clients as a couple and communicate with them both, as well as meet them jointly, but that doesn’t mean the female feels completely engaged.
In 2020-21, HM Revenue & Customs statistics indicated £15.7bn of assets was transferred to surviving spouses, when 73% of the widowed population were women. Intermediaries whose propositions demonstrably embrace female clients are likely to have a more valuable business.
So, having set out what some might see as a gloomy or even negative picture, what can be done to ensure clients remain sticky as intergenerational transfers of wealth take place?
The first step is to segment your clients by age, family and also possibly business clusters, to really understand the make-up of your client base.
It will take time to achieve enhanced relationships and the saying “what gets measured, gets done” is good to keep in mind
The second step is to review how you communicate and interact with your clients. This should encompass client reports, how you conduct client meetings and the literature you use, as well as the content of your website. Are they sufficiently focused on all your client segments, be that couples, females and children?
The next step is to put in place actions to meet the adult children of clients where their assets invested exceed a threshold you think is appropriate (the £250,000 used above, for example).
The results will not be instant. It will take time to achieve enhanced relationships and the saying “what gets measured, gets done” is a good one to keep in mind.
There needs to be a regular review of progress and adjustments made. Over time, the results should come through in a number of ways – not only higher client retention but also more referrals.
All of this contributes to building the embedded value of your firm and what it is worth as and when you decide to sell or pass the business on to colleagues.
Roderic Rennison is a founder and partner of Catalyst Partners
