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FOR IMMEDIATE RELEASE 2002 Client Acquisition Study is available1st September 2002 -- New MDRC Study finds that key elements
of the cost of acquiring an Investment Management client has increased by 250%
since 1999. MDRC, the specialist Wealth Management consultancy, has completed a major study into the cost of acquiring a client into a discretionary investment management service. The study, carried out over the last 8 months and involving a major “mystery shopping” exercise, has examined all elements of the client acquisition and sales process followed by Investment Management businesses and Private Banks in the UK. This latest study is the third carried out by the MDRC team into client acquisition since 1996 and provides an in depth assessment of the current economics of the client acquisition process, and highlights the changes in the economics of investment management sales seen over the past 6 years Over the 8 months of the study MDRC followed potential sales from 9 different lead sources through to 13 successful investment management sales. MDRC monitored progress through different stages of the sales process and was able to map a wide range of product sales. One of the study’s findings is the continuing decline in interest in simple portfolio management among potential portfolio management clients. For the first time sales leads derived from the Internet have featured as a measurable source of leads and been able to be included in the study. Amongst others MDRC also monitored the sales process of a Swiss based bank acquiring clients in London. Here the findings were that the costs of acquisition had increased only slightly since 1999 and were now broadly comparable with similar institutions in the UK, leading to a real opportunity for cross-border sales in wealth management. The overall conversion rates observed compared favorably with study results obtained in 1996 and 1999, but there were substantial increases in the time taken to complete the sales process and an increase in the effort required to manage a sales lead through to completion.
The study finds that the cost of a simple face-to-face sales interview has risen from an average of £456 in 1999 to £1,176 in 2002 an increase of 250%. This increase has been driven by a sharp increase in sales related overheads and a reduction in seller efficiency. End to end acquisition costs in 2002 range from £1,500 to £23,000. This is a substantial increase over the range of acquisition costs seen in 1999 and suggests that it may be uneconomic to pursue small portfolios without a radically different approach to client acquisition. Richard Williams, MDRC Director, commented “Some of the highest acquisition costs we observed were at businesses with relatively low client asset thresholds where business was being pursued regardless of the potential. It appears that these businesses are driven by sales numbers, not by client profitability; and almost certainly are taking on clients who are value destroying”. One key finding of the study is that differences in lead management drive the differences in conversion rate where lead quality is broadly comparable and that opportunities exist in all acquisition processes to manage the process more effectively and ultimately improve client profitability. MDRC is critical of the lack of process awareness and sales cost management in the wealth management industry. MDRC has analysed the client acquisition process followed by a number of different businesses and has developed a 4 phase client acquisition model. Mapping existing activity against this model identifies opportunities for efficiency improvements and cost reduction. Richard Williams added, “We were surprised that the economics of acquiring clients had changed to such a degree, and I was particularly surprised that so few of the businesses had a robust sales process beyond the legal requirements of the sales interview. It is not possible to manage the cost of client acquisition without having a properly designed and implemented sales process. Businesses recruiting investment portfolios of less than £250k, perhaps even £500k, need to be very careful about their acquisition processes to make sure that these clients are not destroying value. Having a source of “warm” leads does not guarantee a low cost of client acquisition” The study is due for publication in mid September. Contact Richard Williams at MDRC on 01932 268475 or by e-mail Richard Williams (williamsrv@mdrc-uk.com) for more information. For More Information Contact:
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