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A Key Practice Management Tool Is Setting Client Expectations

Fives steps a firm took to clarify to clients what it does and does not do.

Veena A. Kutler and Annette F. Simon, 06/01/2006

This monthly series of articles will describe the steps and occasional missteps we took in building our financial advisory business, Mosaic Wealth Management. This is the third in the series. The first discusses how we became partners, and the third described our transition from home office to business suite.

Mosaic is a fee-only comprehensive financial planning and investment management firm located in Bethesda, Md., a suburb of Washington, D.C. At this writing, we have about $50 million under advisement, 40 plus clients, two employees, an 1,100-squar-foot office suite in a Grade A building, and the two of us--Annette and Veena--the principals and equal owners of the firm.

One critical practice-management lesson every advisor learns over time--often the hard way--is the importance of setting appropriate client expectations.

When we opened the doors of Mosaic in 2000, we knew from day one that we wanted to offer a comprehensive service--one encompassing all aspects of financial planning and investment management. This was the kind of service we would seek if we were in the market for a financial advisor. 

Naturally, in the beginning our greatest challenge was bringing in new clients and growing the business. It would be an exaggeration to say that our target market was clients with a pulse, but our minimums were so low that it sometimes felt like that was the case. Over time, our minimums and our selectivity increased. We realized that our comprehensive financial planning and investment management service was not for everyone. We learned it was better to just say no to clients who were looking for services that did not fit our business model--even when we were tempted to say yes to grow our top line.

Over this same period of time, we learned, through our own experiences and those of respected industry leaders, that our service must be priced appropriately to be both a value proposition to our clients and profitable for us. Gradually, we raised our minimums and migrated from AUM and financial-planning fees to a comprehensive retainer fee.

How to Manage Clients' Expectations

Since our first days, business has grown steadily. We have increased our assets under management and, perhaps more significantly, strictly adhered to our higher standards for new clients. While most of our clients are generally delighted with the service we provide, from time to time we have heard offhand comments and questions that remind us how difficult and important setting client expectations can be.

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