Finding the X factor in new clients

She has a thriving business because nearly all her clients have “the X factor”, she said. She described clients with this quality as “interesting and successful people with strong core values and a desire to delegate the management of their wealth to us”.

X factor clients are certainly not mass market, considering the fees that planners and advisers now demand

This is a pretty good definition, but I wonder if many advisers have considered their own definition of the elusive X factor client or have tried to define what it means when it comes to finding ideal clients.

Many people will think of the X factor only as a popular TV show featuring a stream of often talentless people with egos the size of small towns. Needless to say, most of them have no X factor at all. That said, when the X factor is discovered at the auditions, it can mark the beginning of a new star’s career. So while it is an elusive characteristic, it is essential for success in any sphere.

From a financial adviser’s point of view, the X factor is not about searching for a one-in-a-million client, but rather finding a type of client they can get on with and enjoy working with – and, perhaps most importantly – can afford the fees and value the advice they receive.

X factor clients are certainly not mass market, considering the fees that planners and advisers now demand. I have often thought that, as adviser fees have risen and advisers have been pushed towards the wealthier client brackets, perhaps there are too few clients with the X factor. This could become an issue in the future.

This potential shortage of suitable clients was an issue raised with me recently by another financial planner. He has decided to alter part of his business model to move at least some way down the internet-based, cut-down investment advice route by offering a limited service for lower fees.

For most advisers, the X factor search is a case of finding clients similar to the ones they already have, those they have amassed over a number of years. I know of one adviser who spends most afternoons playing golf and hunting for new clients on the golf course – very successfully, I gather. Who is to say this is not the correct and most cost-effective approach when it comes to finding his X factor clients, not to mention the benefit to his handicap?

However, many advisers still wait for clients to come to them. Referrals from existing clients are often mentioned as the best way to find new clients, and it would be pointless to deny the power of this approach. After all, if your clients already have the X factor, they may well know other X factor clients.

In my early days working on Financial Adviser’s popular Mystery Shopper feature, I recall that many IFAs were genuinely shocked to be rung by the mystery shopper out of the blue and asked about joining their client list. Nowadays, of course, it is not out of the realms of possiblity that a new client might contact an adviser having read their blog or seen their tweets or read their comments on Facebook. It is a different world, and new clients can come from all directions. Of course, the rules are the same – only the right clients will result in a successful financial planning or advisory business.

I suspect many advisers now feel they have many of the right clients and perhaps just a few of the wrong ones. One of the first jobs many adviser business consultants do when working with a firm is apply strict client segmentation rules to assess which clients are worth keeping and which are not. It can be a tough and often unsettling experience for advisers to ditch clients who do not have the X factor.

I met a planner a few years ago who told me he had be forced to get rid of nearly all his clients and find new ones who could afford his fees when he converted his firm from a commission-based business to one based on fees. It took years, but ultimately it was the right thing to do. He found his X factor clients.

Many advisory firms have yet to find theirs, of course: they labour on with a broad mix of clients and avoid clarifying who their X factor clients really are. I know several advisers in this camp, happy with a small, personal business with close client bonds.

This approach is perfectly rational. However, I suspect it will be the advisers who know exactly who their X factor clients are – and where to find more of them – who will prosper in the next 10 years.

Kevin O’Donnell is a financial writer and journalist