Schwab Advisor Services is running free immersive consultation programs for advisors. Here, Family Wealth Report talks to Schwab professionals and advisors who have been through the program.

It’s often said in the RIA industry that the competitive environment is cut-throat, that there is pressure on margins, and that firms struggle to articulate their value proposition in a way that differentiates them from their peers. What’s less often stated is a clear answer to these problems.

Schwab Advisor Services, though, is investing in a long-term way in the advisory industry: by running free immersive consultation programs for advisors on strategic business issues. The latest topic to be added to the program was managing client profitability. The program series is inspired by the firm’s benchmarking study of the industry, which highlights advisors' business needs.

Moreover, the firm has moved from a knowledge-based approach – such as via whitepapers - to a focus on implementation at its Advisor Services arm, after perceiving that that’s what its clients were crying out for.

“There’s a tremendous amount of information out there for business owners and advisors on best practices – what they ask for is ‘how can you help me implement these kinds of changes in my business, can you coach me and consult with me?’” says Nick Georgis, vice president of Schwab Advisor Services.

The consulting program has been running for just over a year and a half; around 700 advisors have come through it so far, and it has taken place in 19 cities. Next year, says Georgis, this is expected to expand to 30 cities.

“The demand has certainly been overwhelming in some ways. We were surprised. In the beginning we weren’t sure if advisors would be willing to take the time necessary to do the pre-work, spend a day in a workshop, and then spend the next several months to really refine and implement the practices,” he says.

A time commitment

Indeed, while the programs are run free of cost to the advisor, they do require dedication and time – the latter something advisors are often short of.

“You can’t take it lightly – you’ve got to invest some significant time,” says Bob Weisse, director of portfolio management at Heritage Financial Services, which has been through the client segmentation program.

As well as the initial workshop, Weisse then worked with Alissa Karlsberg, a senior relationship manager at Schwab Advisor Services, throughout the implementation phase.

“During the implementation phase, we coached them on client communications and scripting for those clients who were transitioning to a new advisor within the firm. Throughout the process, I scheduled bi-weekly conference calls to keep us on task,” says Karlsberg, who covers the New England region.

The goals, outcomes of the program

The program on client segmentation is aimed at advisors who want to improve client profitability and deliver a more consistent service – something the industry notoriously grapples with. “I think we have hit a nerve here,” says Karlsberg.

“One of the primary motives was to increase profitability,” says Chuck Bean, president and director of wealth management at Heritage. “This practice is 22 years old. Over the years, we picked up a lot of clientele”... It had “hundreds of clients associated” with it. What’s more, he thinks this position is  “extremely common” among his peer group. You “don’t always know: where is the line in the sand? This puts the boundaries in place,” he says.

Part of the problem with segmentation is that it goes against the grain of an industry that is service- and client-based. 

“I think some advisors have a philosophical opposition to segmentation because they feel that it could be perceived as putting the firm's needs ahead of the clients’ needs,” says Karlsberg. However, firms also realize the need to be consistent and profitable, she adds.

Bean agrees that it can be hard. “It is very difficult to let someone go. We’re very sensitive to relationships; we’re very sensitive to families. The human element is so precious in our industry.”

For this reason, the firm does serve legacy clients whenever possible – but has five distinct service models fitting with client types, and will fit clients into the most suitable service model.

Another difficulty is how you segment clients. Particularly, the Schwab approach encourages advisors to think beyond assets. Instead, advisors input a host of information on clients to produce define their service level, including revenue, asset "potential" and referral sources.

“You need to define your client in a very detailed way...It allowed us to define each segment and train our staff according to those five business models,” says Bean.

And this is the other desirable outcome of client segmentation: as well as individual client profitability, it is  about consistency. Again, on an ideological level this can be hard for an industry where – at the top end – every client demand must be met, no matter how wonderful or weird. However, the idiosyncrasies of client relationships don't invalidate processes and boundaries. Instead, formalizing the offering allows advisors to better understand where they add value.

“In the program, participants create a client experience roadmap allowing them to better articulate their value which leads to more referrals,” says Georgis.

And of course, in an environment as competitive as the current one, that is essential for growth.

A new, proactive paradigm

“I'm seeing advisors identifying the need to become proactive in their approach to business development and differentiating themselves from the competition,” says Karlsberg. “Advisors are now competing against at least one or two other advisors during the sales process and need to clearly be able to explain who they serve and what makes them unique.”

However, this isn’t only a factor of the difficult economy. More positively, Georgis believes this is a product of an RIA industry that is maturing.

“We’ve been serving RIAs since the late 80s, and we have watched the incredible growth over the years, and the last decade has been unbelievable,” he says. “The number of RIAs and the growth of RIAs during what is arguably one of the worst decades ever economically just shows the resilience and the value of their proposition to investors.

“We’ve seen it for a long time and we don’t think it’s going to go away, we think there’s still wind in their backs. But we also see that, because they’ve been in business for longer periods of time, and because there are more RIAs being created virtually every week, the complexities are just more challenging and they need more help to continue to grow and meet their goals,” he adds.

Schwab’s strategy

For Schwab of course, this growth in the advisory industry is essential. Schwab Advisor Services offers the immersive consulting programs freely to the industry, partly because the growth of this business is so intertwined with the RIA industry. The consulting program forms part of a “three-pronged” strategy, explains Georgis, along with the division's technology offering and custodian services – all of which are dependant on demand from the industry.

“When advisors are successful, so are we,” says Georgis.