At a glance
- The framework defines True Gross as everything a client pays: financial planning fees, investment fees, platform fees and fund expenses.
- The sorting tool is a Red/Yellow/Green report: every client household, every dollar of revenue that household generated over the trailing 12 months, and the assets the firm manages for it.
- Households at or above the target are green and are the ones the authors expect to keep.
Matthew Jarvis and Micah Shilanski, who coach advisors through The Perfect RIA, have published a template for deciding which clients to keep in an Oct. 19 Kitces.com guest post. They say they implemented the practices in their own firms.
The framework defines True Gross as everything a client pays: financial planning fees, investment fees, platform fees and fund expenses. True Net is the money that reaches the owner's tax return, in whatever mix of wages, profits, owner's distributions or guaranteed payments the practice runs through it. The authors want True Net divided by True Gross to come out at 30% or better, with 50% as the ideal. They frame that figure as both this year's income and a buffer against a market downturn, a client lawsuit or a regulatory action.
Where the red, yellow and green cutoffs fall
The sorting tool is a Red/Yellow/Green report: every client household, every dollar of revenue that household generated over the trailing 12 months, and the assets the firm manages for it. The owner picks a per-client revenue target that is both ideal and realistic.
Households at or above the target are green and are the ones the authors expect to keep. Households between the target and half of it are yellow; the post prescribes an upgrade-or-graduate conversation in which the client either pays a fee that better matches the value delivered or moves to an advisor better suited to their needs. Households below half the target are red. The visible text of the post ends before it says what to do with them.
Raising the target pushes households down a tier even if their pay is unchanged, because the yellow band stretches from half the target up to the target itself. The exercise is only as strict as the number the owner picks. Because the target is left to the owner, two firms with identical client rosters can reach different answers about who stays. Because True Gross counts dollars beyond the planning fee, the target is a higher bar than the same percentage applied to planning revenue alone: reaching 30% of True Gross means netting 30 cents on every dollar the client pays in total.
The exercise is only as strict as the number the owner picks.
Reported by the Practice management desk from Kitces — Nerd's Eye View. Published . Corrections