Why Up To 72% Of Your Financial Planning Client Book Costs MORE To Serve Than It EARNS. - Pillar Client Services

Financial Planner Life Podcast

The episode explores the significant profitability crisis facing financial planning firms, where research indicates up to 72% of client books may

Key takeaways

• Research shows that between 44% and 72% of average advice books are unprofitable at the individual client level.
• Pillar Lens acts as a diagnostic tool, plugging into back-office systems like Intelliflow to reveal true cost-to-serve metrics.

Main topics

• Client book profitability
• Pillar Lens diagnostic technology

Notable quotes

It's like taking your car to a garage. You plug it in and it tells them everything that they need to know.

Conclusion

The episode highlights a transformative approach for financial advisor

Transcript preview

Speaker 1 (0:03) And today on the Financial Planner Live podcast, we welcome Brian McLaughlin from Pillar Client Services. And we go deep into unprofitable clients within client books of financial planning businesses. They have a diagnostic tool that within hours can pinpoint exactly where you can save time and money by segmenting clients and passing it to their Pillar Client Services without losing the client. It's a fantastic episode. This is a very unique product for financial planning companies or anybody looking to grow their advice business through acquisitions. So if you're a financial planning business that feel like your time is being taken up by non-profitable clients, but you don't want to lose them, you're going to love this episode. Speaker 1 (0:54) So Brian, thank you so much for joining me today on the Financial Planner Live podcast. How are you? Very good. Thanks for having me. You're very welcome. Flew down from Scotland this morning. Speaker 2 (1:02) Just to see you, Sam. Yeah, just for us. Well, Speaker 1 (1:05) I appreciate it. Speaker 2 (1:06) You're welcome. Speaker 1 (1:07) And so did the Financial Planner Live audience. Speaker 2 (1:09) Yeah. So Speaker 1 (1:10) first off, just tell us a little bit about who you are and what your company does. Yeah. Speaker 2 (1:15) Look, I've been around the industry for a long time, 27 plus years now, but always been a sort of a distribution guy. So always been on the sort of a sales side. Yeah, from the very early stages at Prudential all the way through to Rathbones and Octopus and various different degrees of seniority. And yeah, spent most of my time in front of IFAs, small, medium and large. The great and good of the industry over the past 20 odd years. So yeah, I've been around the block. Speaker 1 (1:44) So you've got Pillars Client Services now, that's your company. Can you just tell us a little bit about what that company does and why you created it? Speaker 2 (1:52) Yeah, yeah. I guess it follows on from my journey in the industry. Probably about six years ago, I became a little bit disillusioned by, let's say, product providers, manufacturers, because I worked for them. And I saw firsthand what they were truly like. And the reality was we sent people into IFA offices all up and down the country, and we asked them to be consultative, and we asked them to build relationships and be caring, and fundamentally make them like you. And then we listened to all the problems and we told them that the solution to their problem was a product or a fund. And the reality was we'd spent an hour or whatever listening to all these troubles that the answer that we were given was never really the answer. And the problems that were telling us we were not doing anything with those problems, we weren't taking them back to our businesses and saying, how can we really help these IFAs? Because there's some real inherent problems and troubles in there that if we actually spent time as an industry. we could probably overcome some of it. So, yeah, so I spent the past five years through my MBA journey, first of all, for two and a half years, really digging into the sort of real challenges that the industry faces, spending time with about 250 IFA firms, and on the manufacturer side as well, I interviewed about 150 C-suite executives, to really get a sort of a deep understanding of why there's a lack of innovation and why there's a lack of sort of a... change in our industry and I know more recently the AIs came to the fore and challenged that in many respects but for me it was a sort of a real body of work to say what truly are the challenges and how do we sort of change the industry, how do we overcome some of those big challenges? And that led me to the past two years where I sort of went, right, I'm going to build a business because I want to do something different. I want the industry to change and I want to be part of that change because there's no point in having these feelings and beliefs and then just staying in a big product provider, getting a nice salary. Why not step out and try and be a change maker? So that was fundamentally what led me to create Pillar Client Services because I had all the problems. I'd sat and listened to all the challenges. And then it was a case of how do I build something that actually addresses some of the fundamental challenges that we face in financial Speaker 1 (4:05) services. And Speaker 2 (4:06) Pillar Speaker 1 (4:06) Client Services was born. Fantastic. So what were some of the problems that were coming up the most then? Speaker 2 (4:11) Yeah, I mean, look, it's always interesting when you carry out a body of research, you go in with these sort of preconceptions about what those challenges might be. The reality was because I'd spent 20-odd years of my life in front of IFAs, I knew what a lot of those challenges already were. But the point was going deeper into those challenges, so not just, you know, we don't have enough time, we've got too many clients, regulation burden, costs of running a business, staff challenges, recruitment, all the things that I knew would be said, but actually drilling down into why are those a challenge, what does it mean for the business and how does it impact the business at a deeper level. So it's all very well said and done, Brian, I want new advisors. Do you know any good paraplanners and advisors that you can put my way in your travels? But for what? What are you actually trying to solve under that? What is that new advisor coming in to do? Or what is that new paraplanner coming in to do? And that's what led me down the path of really looking at it as the challenge is time fundamentally in most IFA businesses. You know, the demands. The industry has put on advice. It has got bigger and bigger and greater and greater. The regulatory need is greater. So for me, it was about making sure that advisors, I guess the construction of Pillar was about how do we free up time in the advisor business and fundamentally how do we make sure that clients still get a very good level of service and they get value delivered to them, but the advisor can actually run a profitable business alongside that. And actually, the key thing at the back of that was... try and address some of the sort of advice gap challenges that we face, as well as some of the recruitment challenges that we face in the industry as well. Because as I was going around doing my research, you know, I saw the demographics of the industry. We all know the challenges there. I heard advisors saying to me, you know, I've been on a journey. I've been around for 10, 15, 20, 25 years. At the start, my client journey, what my client intake was, you know, I would take on anybody to actually now having to turn clients away. I don't need new clients. And then the challenge that that faces, they've got this huge book that actually can't necessarily be serviced in the way that it needs to be from a consumer duty perspective. So yeah, Pillar Client Services is about trying to address some of those challenges. Speaker 1 (6:19) Okay. Did you find a lot of the time it was feelings based? Like leaders within this business were talking through feelings and perhaps not facts. Speaker 2 (6:28) Yeah. I always called it gut. Because when I was drilling down and I was sort of saying, how do you know? And they would say, well, we're all busy. I can't get enough done. Operationally, we can't do more. Everybody's at full tilt. Speaker 2 (6:43) They didn't really want to talk about inefficiencies within the business. They didn't want to look at the operational changes that could be made. Generally, what I found was that advisors had a gut feeling that they couldn't take on more clients because everybody was at capacity. And they usually just throw money at that by recruiting. Right. Or bringing in another tech solution that probably doesn't address the problem that they've got. So, yeah, so it was very much a gut feeling thing, which is great because, you know, go with your gut sometimes. But my whole... Speaker 2 (7:12) thesis I guess is based on we'll take that gut feeling let's drill into it and let's find out actually what it's like at client level what is it within your business that operationally makes you inefficient and then start looking at how we can change that up to make you more efficient how can we hand you back time and what do you want to do with that time once you get it because We're all very good at creating more time. We onboard new systems, we onboard AI, and then we get time back, and then we just fill that time with stuff that isn't profitable or is more inefficient. So actually making sure that when we hand that time back to advisory firms, how do we make sure that you're then utilising that? And whatever that may be, whether that's for personal stuff, to go out Speaker 1 (7:51) in Speaker 2 (7:51) your own life and see more family members or play more golf or go on more holidays, or whether that's, I want to grow the business to X because I'm trying to sell it in a number of years. Speaker 1 (7:58) What would you say is the biggest problem? that you believe advice firms have with their existing client books? Let's look at that angle first, because I think that's a big area of your research, showed you that that's a big area that can be moved, right? Speaker 2 (8:11) Yeah, massive, yeah. Look, I think it comes as no surprise to most IFE principals that they have that understanding of who's good on their books, so they can rhyme off all their best clients. But that's subjective, what does best clients mean? And again, through our research, it was... It would be AUM, you know, this client's got X amount with us or this client pays that fee. So when you just sort of calculated that through tangibly in your head, that meant they were a good client. They were above a threshold. They pay me more than £2,000 a year. That means they're good. The reality was they had no idea what profitable was from a client perspective. They had an idea of the cost to run the business. So they would have a perspective of the business costs X to run. We've got so many clients, so divide that number of clients by the cost to run the business and we have a number. And how much money do we make and then what's the profit in that? And what's the margin in that? But actually that doesn't give you a true reflection of what's underneath that because at client level, every client has a different need. Every client has a different, you know, their perception of what value is from an advisor is very different. And actually the delivery of value from the IFA changes client by client. And not just the IFA, but the para planners, the admins, everybody that interacts with the business. So I guess what we tried to do was really drill into that and sort of start looking at client by client level and saying, right, what does each client cost you to service? Specifically that client, not just an average number split across a whole book, but what does that client cost in you? And that's where Pillar Lens was, I guess, born. Speaker 1 (9:37) Tell us a little bit about Pillar Lens then. Speaker 2 (9:38) Yeah. So I... I tried to fancy this up as much as possible when I was talking to IFAs about it. A lovely IFA in Aberdeen, of all places, sort of cut through all my jargon and said, basically, it's like taking your car to a garage. You plug it in and it tells them everything that they need to know. It tells them all the faults, all the problems. And I thought... I wasted about four months trying to build that pitch deck and I could just have went with your analogy. But I think that analogy plays true because fundamentally what we do is we plug into your back office system through Pillar Lens. We diagnose your entire book. So everything that's on that, we drill into every single piece of information that you've got on that client. The idea is that we hold a mirror up to you at client level. So we start to show you what each client... takes to service. So what's the cost to service that client? What's the interactions? How many emails do they get? How many phone calls do they make? How many meetings do they get? What do they get from a marketing perspective? And then from a sort of a review perspective, what are you actually delivering to them? And then looking at things like what is that client and how up to date is that client? And is there challenges there in your data? And can we help you clean that data? And then we present you back this sort of a... full diagnostic, what's-and-all board report and Excel spreadsheet that says, look, here's some of the challenges in your business. So at the base principle, it's your business has 400 clients, it has £1.4 million of revenue, and you've got £200 million under management. That's great, but what does that mean? And then we take it to the next level that says, what does each client bring in terms of profitability and how profitable are they? What's the cost of service? and then being able to play that back to an advisor and say, well, here's what individually each of your clients cost you per year, and then you can see whether they're above or below that line that they should be. So you can actually start to see at a client-by-client level whether they're profitable or not. And the biggest surprise for most advisors is that there's always clients in there that shock them, that they think are profitable because they've got a certain number in their head, and actually when you drill down to what they take from you or what they need to service them or the cost to service them, it's far higher. So you can start to see straight away that sort of a book breaking up into the segments, what's profitable, what's not. And you can start thinking about what do you want to do with that? Speaker 1 (11:58) Yeah, you had a white paper, you kindly sent it to me. And your research suggested that between 44 % to 72 % of the average advice book costs more to serve than it generates. Yeah. So why is that happening? Speaker 2 (12:14) Yeah, look, I think, again, When I spoke to IFAs first about this, Speaker 2 (12:22) I think a lot of IFAs have a perception of what their book's like, but there's recency bias in that as well, isn't there? So they just think about what they're doing in the past month, three months, six months, a year, and naturally you forget about the whole journey that you've been on, you forget about the book that you've built over a period of time. So it's easy to focus in on what you've done in the past three months and think, yeah, I'm really profitable, look at all the new business I'm writing, look at the revenue that comes in from these clients, look at the reviews that we're doing. But when you actually do the diagnostic, when you actually really drill into it and you see that sort of profitability number, and that was based on about 150 firms that we looked at, that number between 44 % and 72 % were unprofitable. And that's at client level, so that's us drilling right down to the cost to serve those individual clients. Now there's an actual... I guess, reaction for advisors that will say, but that's not the case because that client's the nephew of my wealthiest client and that's somebody who gives me loads of leads and connections so they're really profitable, just not in the face of it or they pay me an ad hoc fee, but that's fine. But fundamentally, when you strip away those individual cases, you're left with a big number. And what you normally got is this cross-subsidisation going on in