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Diversify your client base to future-proof your business

10 May 2022
4 minute read
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A few large, loyal clients are a great asset for any business – but relying solely on their business can present you with significant risk. If only one client leaves, your revenue loss can be devastating. A diversified client base with different revenue streams can cushion your business against these potential losses, and lead to growth.

A diversified client base adds value to your business

Diversifying your client base will give you a more resilient business because you will have access to revenue from different sources. This means that if one revenue stream declines, there are alternative revenue streams that will ensure your income.

“When you diversify your client base you spread your risk so you are not overexposed to one particular cohort,” says Barry Shrosbee, senior manager at 1Life.

A diversified client base is also a big value-add when you are selling your business because a more diversified client base represents less risk for the new owner as well – and should result in a higher valuation. If you are offering a base of only a few clients, there is a risk they may not move to or stay with the new owner.

Clients benefit from a diversified client base too. This is because a resilient business will be more likely to continue to service them in the future, and you may also deliver opportunities to meet more of their financial needs.

Determining how diverse your client base is

Start with looking at your current client book to determine where you need to diversify.

Although most advisers are aware of who their clients are, the extent of diversification among clients needs to be objectively assessed. Make this a scientific, data-driven analysis or research project, to achieve different revenue streams and ultimately a more prosperous and sustainable business.

Use your CRM or other software, or a spreadsheet, to determine your clients’:

  • Ages
  • Genders
  • Employment details (employed, self-employed, industry, retired)
  • Incomes
  • Geographic locations
  • Product types

When you have this information, you will be in a position to know how much risk you are exposed to in any particular area. For example, if all your clients are in one industry, have the same products, and are nearing retirement age you may want to diversify your client base by adding younger clients in a different industry to your book.

Diversifying your client base

To make sure that you are not overexposed to one area, you should add clients, and/or products to appeal to different clients. Shrosbee shares some ideas on how to diversify a business:

Ensure you have a broad product offering that speaks to multiple client needs.
One of the challenges identified by wealth manager studies is that financial needs have become much more complex. When you have a broad product offering, you can meet multiple needs of multiple clients, rather than limiting yourself to one type of client. You can either upskill or partner with an expert to offer these services to your clients.

“Consumers’ lives have become more complicated … as consumers try to achieve multiple goals (e.g., sustaining a certain lifestyle, buying a second house, paying for children’s education, retiring with confidence and ease, funding rising healthcare cost of aging parents, etc.) they need advice on how to fund these multiple goals over time, how to make trade-offs between them.” 10 disruptive trends in wealth management, Deloitte.

Offer a wide range of investment products.
Shrosbee says this includes onshore and offshore investments, as well as different asset classes and styles such as ETFs, unit trusts, direct equity, and investment vehicles such as structured products. This will cater to different investors and different needs such as retirement and investing for education, or clients with family overseas.

Ensure you have a range of ages in your client base.
Older clients are traditionally more secure, stable, and have more financial resources. But as they age, your book ages and revenue from this client base will decline. Beneficiaries who inherit wealth from your clients can mitigate this, but research puts the number of heirs who change advisers after inheriting between 47% and 90% making it critical to building relationships with younger clients – even if they don’t yet have as many resources. This article from the Modern Advisor blog has some ideas on how to attract younger clients.

“If you can find ways to penetrate the younger client base you will have a strong book well into the future,” Shrosbee says.

Operate in different markets.
Shrosbee says advisers should consider both the affluent and entry-level markets, as this will ensure greater diversification.

“Traditionally the cost of new client acquisition is quite high in entry-level markets – especially when you have to travel to different areas in the province or country to reach them. However, technology has changed this. These markets have not been serviced properly from an advice perspective, which is why direct channels have been so successful. But there is still a need for advice – if anything there is a greater need for advice in this market, and mass customised solutions, such as 1Plan from 1Life, ensure that you can efficiently give proper advice.”

Top tip: Use technology to help you diversify – you can work from anywhere and service clients across the country, sometimes even the world!

More opportunities

Finding and onboarding new clients can take some time, but now that you know which clients you need to add to your book to diversify your base, you can specifically target the relevant markets or areas. Some resources for how to find new clients can be found on practice management sections of the websites ThinkAdvisor.com and Investmentnews.com.

Final thoughts

Technology has made it easier to reach clients – wherever they are, and service clients – whether they have one need or many different needs. This in turn has made it much easier to diversify a client base and future-proof your business.

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