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Best Financial Services Case Study

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Ian Dunn wrote this case under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail
Copyright © 2009, Richard Ivey School of Business Foundation

Version: (A) 2010-05-18

It was January 20, 2008, and Linda Best, founder and sole shareholder of Best Financial Services Inc. (Best
Financial), had just finished her final client meeting of the day. The meeting was with one of her top clients, Gerald Young, who had informed her that he would no longer be using Best Financial since he was moving his assets to one of Best’s competitors. The loss forced Best to think about the future direction of her company. Without Young’s business, Best Financial would struggle to exceed the previous year’s sales level. Best decided it was time to focus on the strategic direction of her company and develop a plan to grow the business and to make Best Financial a leader in the financial planning market in Sarnia. To do so, Best would need to complete an assessment of the industry and Best Financial’s past performance, followed by projected financial results based on her new plan. If she acted promptly, Best could implement her plan on March 1, 2008.

Financial planning was one distinct segment among many within the financial services industry. Financial planners used a holistic approach in assisting Canadians to maximize the potential of their financial assets.
Financial planners typically evaluated a client’s goals, personal circumstances and risk tolerance in an effort to help them grow and preserve their wealth, minimize taxes, complete estate planning, and determine insurance needs. See Exhibit 1 for the six steps of financial planning, as outlined by the
Financial Planners Standards Council (FPSC) in Canada. Some financial planners also offered a variety of investment products, for example: mutual funds, guaranteed investment certificates (GICs), life insurance, and retirement plans.
A mutual fund was a diverse collection of stocks and bonds that was professionally managed. Several people pooled their money together by investing in a mutual fund and then shared in the return through dividends, interest and appreciation.1 A GIC, wherein individuals locked in a certain amount of money for a set time period, was a deposit investment security sold by Canadian banks and trust companies. A GIC
1, November 30, 2008.

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Page 2


Any company that offered financial planning earned revenue mainly through commissions and trailers on the products it sold. For example, a mutual fund often had a front end fee attached to it at the time of purchase. This fee was paid by the investor and acted as the financial planner’s commission and compensation to advisors for their advice and assistance. The trailer was money paid annually to the financial planner by the mutual fund company for maintaining the account with clients. In contrast, there were a small percentage of financial planners who offered their services on a fee-for-service basis, similar to an accountant. Financial planners who used this method stated that their advice was not influenced by commissions. Many financial planners also earned other revenues, including life insurance sales and income tax preparation.
Approximately 50,000 to 60,000 individuals offered financial advice or sold financial products in Canada; however, not everyone had a Certified Financial Planner (CFP) designation. The CFP designation was monitored by the FPSC and aimed to develop, promote and enforce the highest competency and ethical
standards in the industry. The CFP designation assured a client that the planner had completed a rigorous course of study, passed a national examination, and had engaged in continuing education. The FPSC reported that approximately 17,000 individuals had their CFP designation. Many of these individuals worked for national financial corporations, but there were several who operated their own businesses.
A recent U.S. study revealed that employment of personal financial advisors was expected to grow by nearly 35 per cent by 2012. Ninety per cent of CFP professionals had earned a bachelor’s degree or higher,
and 76 per cent of CFPs were male. In Canada, more than one-third of practising CFPs were over the age of 50.

Sarnia, with a population of over 71,000 and median age of 43.2 years, was the largest city on
Lake Huron in Southwestern Ontario.5 The city bordered the United States, connected by the
Bluewater Bridge, which was one of the busiest border crossings in Canada. The Sarnia area was well known as “Chemical Valley” since it was the first commercial oil drilling site in North
America. A large number of residents were still employed in the petrochemical facilities located in and around the area.
There were around 60 individuals offering financial advice and products in Sarnia. Of these, 22 had their
CFP designation. The majority of CFP professionals worked for national corporations or focused on insurance sales. Some of the larger financial corporations that operated branches in Sarnia included
Assante Capital Management, Freedom 55 Financial, Dundee Wealth Management and Sun Life Financial.
2, November 30, 2008., November 30, 2008.
4, November 30, 2008.
5 eo2=PR&Code2=35&Data=Count&SearchText=Sarnia&SearchType=Begins&SearchPR=35&B1=All&Custom=, November
30, 2008.

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was considered a low-risk investment. Income was earned through interest payments to the investor. Life insurance allowed individuals to protect against the loss of their income in the case of death. With most policies, the individual paid a fee for this protection and named a beneficiary to receive the proceeds after the death. Finally, retirement plans helped provide individuals with income after they have ceased employment. Page 3


The Sarnia market was unique in that financial planners often dealt with both Canadian and American financial and taxation issues. Some clients worked in the United States and many made large purchases
across the border. Also, the Sarnia area was heavily populated with aging baby boomers and blue-collar

Linda Best had been in the financial services industry since 1993 and was eager to find ways to further develop her skills and build upon her experience. On January 1, 2001, she established Best Financial
Services, designed to provide complete financial understanding and advice to people pursuing their financial, family and life goals.
Best had a diverse background, having studied broadcasting and filmmaking in college. After some time as a radio personality, she decided to enter the financial services industry. Best earned her CFP designation and had been assisting clients in making important financial decisions ever since. Best employed two people in her business: Mary Thompson and Jody St. Pierre. Thompson was an associate who had been in the financial services field since 1982. She had a thorough knowledge of Canadian and
U.S. income tax and of mutual funds. Although Thompson was able to assist Best with several daily tasks, she did not have a professional designation; therefore, she could not independently manage client accounts.
St. Pierre had been Best Financial’s receptionist since 2003, following her employment with a busy real estate office.
The key services Best Financial provided were risk management, tax preparation and professional money management. As a CFP, Best focused on providing comprehensive financial planning to her clients by adhering to the six-step process outlined by the FPSC. To assist clients with Step 5 (implementing their financial plan), Best Financial offered a variety of products with mutual funds being the most popular.
Income-tax-return preparation, GIC sales and life insurance sales were also part of Best Financial’s product offerings. Best had been pleased with her company’s performance since its inception. Best Financial had formed strong relationships with many clients throughout the Sarnia area, and currently managed over 1,000 financial plans. The assets of these plans totalled nearly $22 million on January 20, 2008. The company’s revenues had grown steadily, reaching $332,153 in fiscal 2007. The net income for the same fiscal year amounted to around $103,000. See Exhibits 3 and 4 for the company’s statement of earnings and balance sheet. Best Financial Clients

Best’s client base had grown steadily throughout the years, and she was now servicing 600 client households, some of whom had more than one financial plan. Best believed this was close to the

The term “baby boomer” refers to a person born in the post-World War II period between 1946 and the early 1960s.
Blue-collar workers are those who perform manual labour, typically in a maintenance or production capacity, for an hourly wage. 7

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See Exhibit 2 for select financial ratios of Sun Life Financial Inc. There were a small number of financial planners who operated their own businesses: a search of the Yellow Pages revealed that 11 of the 29 listings for financial planning consultants were independent services.


maximum number of clients she could personally handle if she wanted to maintain her current work schedule. Best Financial’s target market was blue-collar workers nearing their retirement. Ideal clients would make Best Financial their exclusive financial advisor. Attitude was an important factor in building strong client relationships. Best believed that her top clients needed to feel comfortable with Best
Financial’s people so that they could share personal information and would want to recommend the company to their friends and family. Best was not in the business of helping people get rich quickly through the trading of stocks, so not every investor was the right match for Best Financial.
Best Financial’s clients ranged in age from 19 to 88 years old. The largest group of clients was between ages 36 and 50 years old. Of the 600 clients, 344 had assets totalling less than $20,000. See Exhibit 5 for this breakdown of client data.
Losing a Top Client

Gerald Young had been a client of Best Financial Services Inc. for the last five years. He had assets valued at over $200,000 invested with Best Financial, and he had recommended Best’s services to his family.
Best was under the impression that Young was a satisfied client, and she had expected their January 20 meeting to be an update on Young’s investment portfolio; however, Young had recently been invited to an event held by Scotiabank, where he did his personal banking. The investment branch of the bank,
ScotiaMcLeod, presented its marketing materials to Young, and the salesperson convinced Young that
ScotiaMcLeod would be able to achieve better returns with his money than was his current advisor. Young was impressed by the additional services being offered by the bank and by the national image of the company so he decided to switch financial advisors.
After Young left her office, Best was shocked by the sudden turn of events. Losing this one client made her wonder if the company could reach the revenue and profit levels experienced last year. Best knew she would need to make drastic changes to maintain and improve Best Financial’s position in the Sarnia market. A Plan for Future Growth

Best decided she would revisit the business plan she had begun writing throughout the past month. By creating a business plan, Best wanted to identify and improve the daily processes used in the office and have a document that she could use in the future to attract employees or sell the company. Another critical aspect of the business plan was Best Financial’s future strategy, and Best wanted to make decisions regarding her options for achieving future growth. One option, which could help increase revenues, was to hire an additional advisor. Best also wanted to investigate the possibility of purchasing a block of business from a retiring advisor. Best knew that the process of successfully implementing each of these options would be challenging; therefore, she believed it would be best to pursue only one of them at this time. In this way, she could dedicate herself to overseeing the transition period. Finally, Best would have to revisit her marketing plan to ensure she could make the most of her marketing budget.
Hiring a New Advisor

Adding another person to the Best Financial team was a logical step in growing the business; however,
Best did not want to hire just any advisor. The entire business was built upon trust and the personal

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Page 4

Page 5


Now at age 45, Best placed a strong emphasis on finding a healthy work-life balance. Family time was very important to her. She was also thinking about early retirement within the next 10 years. If she wanted to eventually have another advisor running the company, Best would need to start the training process soon. A new advisor would need to be committed to Best Financial and be willing to partake in the lengthy transition discussed above.
Best was unsure whether it would be better to hire an experienced advisor or a young professional; however, she thought the job description and compensation would most likely attract a younger professional. Although Best would provide a new advisor with some of her accounts to manage, the advisor would be expected to develop his or her own client base. For this reason, Best wanted to develop a compensation plan that would motivate a new employee. A base salary of $37,000 would be offered along with a performance bonus. A bonus would be added if the new advisor exceeded a set target level for mutual fund sales. The new advisor would earn one per cent of any mutual fund sales above $500,000.
Best anticipated that a new advisor would sell between $650,000 and $800,000 in mutual funds annually.
Mutual fund sales provided commission revenue of five per cent of the mutual fund sales to Best Financial, and Best Financial also earned trailer revenue. Since mutual fund sales occurred at different times throughout the year, it was difficult to estimate the amount of annual trailer revenue, but Best estimated that approximately $3,000 of trailers would be earned annually if the new advisor sold $650,000 of mutual funds. If the new advisor sold $800,000 in mutual funds, the annual trailer revenue would increase by an additional $1,000.
To provide a starting point for the new advisor and to lighten Best’s own workload, the new advisor would manage 20 of Best’s existing accounts. Although Best would oversee the transition with these clients, the new advisor would be responsible for monitoring the account and maintaining the relationship. Regardless of who managed these accounts, no new mutual fund sales were expected. The trailer revenues for these
20 accounts would amount to a total of $1,650 annually, which would go into Best Financial’s sales.

Many of Best Financial’s expenses were fixed costs, such as rent, telephone and utilities, so Best anticipated that they would not change with hiring a new advisor. Given the loss of Young, Best planned to increase marketing costs in fiscal 2008 to $13,000, regardless of her expansion decision. If a new advisor was hired, Best would also increase her annual marketing expenditures an additional 15 per cent of the budgeted amount in order to promote the new advisor. All marketing expenses were paid on account.
This cost did not include a one-time mailing to Best Financial’s entire client base to inform them of the recent changes in the office and to introduce them to the new advisor. This mailing would cost $300 and would be paid in cash.
In order to accommodate a new advisor, Best would need to purchase additional office equipment, such as a computer system and furnishings, which cost $2,000 and $500, respectively.8 Finally, the training process was estimated to cost $2,200 for reading materials and a short course of study.

All office equipment was amortized using the straight-line method over a 10 year useful life, with no salvage value. Any new equipment purchases would be made on March 1, 2008.

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relationships between clients and their advisor. It was very important that Best find a person whose values and work ethic aligned with those of the company. Transitioning clients from one advisor to another would be a challenging process.

Page 6


Buying a block of business, a move that would immediately increase the company’s revenue, referred to the full or partial purchase of another financial planner’s client list and respective investment. The purchaser would take over the seller’s accounts and strive to maintain as many clients as possible. The additional revenue would come from the existing trailers as well as any new sales made to these clients.
Typically, a block of business would sell for one to two times the trailer revenues.
Best had considered this option before, but she had believed the risk had been too high at that time. She now believed the company would greatly benefit from additional revenue if she could keep enough of the clients. Again, this process would be lengthy and the transition must instil the clients’ trust in Best
Financial to manage their investments. The best way to ensure a high rate of retention would be to find another financial planner whose values were similar to those of Best Financial.
Best knew of one financial planner, Jeff Mitchell, who was nearing retirement in the area. Mitchell was hoping to sell part of his client list to another advisor so that he could spend less time in the office.
Mitchell had been a CFP for the last 35 years and had been managing client accounts in both the Sarnia and London (approximately 100 kilometres from Sarnia) areas. He now hoped to sell off his clients in the
Sarnia area so that he could spend time in London and prepare for retirement. Best did not know Mitchell well –– she had just come across an online posting that advertised the sale of his block of business. After doing some quick research and speaking with Mitchell, Best discovered that he had sold several client lists in the past to generate revenue. The majority of Mitchell’s clients were invested in mutual funds with a handful of clients owning publicly traded stocks. Mitchell had a mix of white- and blue-collar clients, with an average age of 59 years.
Mitchell was offering a block of business containing 80 clients with assets totalling $4,022,000. The asking price for this block of business was $49,900, which was 1.5 times the annual trailer revenue. Best thought this was a fair price, and if she decided to purchase the block, she would pay the full asking price.
Best wanted to examine the return she could earn from this option. She hoped to retain 90 per cent of the clients, but given the uncertainty that this would actually happen, 70 per cent might be a more conservative retention rate. The additional revenue would be the trailer revenue, which would decrease in proportion to any decrease in client retention. In addition, Best estimated she could generate new sales with most of these clients in each year that she managed the account: she could earn $3,800 in upfront commissions if
70 per cent of block of business was retained, and this could increase to $5,100 with a 90 per cent retention rate. To effectively manage these new accounts, Best’s two employees would have to work an additional five hours per week. Thompson, the associate, worked an average of 35 hours per week and earned an annual salary of $35,000 in fiscal 2007. St. Pierre, the receptionist, worked approximately 30 hours each week and was currently paid an hourly wage of $14.10. Best Financial operated 50 weeks during the year. As well, Best Financial would spend an additional $435 on paper and postage every year. Given that many of
Best Financial’s marketing activities were directed towards current clients, Best estimated the annual marketing expenses would increase an additional $1,100 above the $13,000 budget if she purchased the block of business. If Best could retain only 70 per cent of the new clients, the additional paper and postage expense would decrease to $350 and the additional marketing expenses would be $900. After discussions with her banker, Best would require a bank loan if she decided to purchase the block of business. Best and the bank agreed to a seven-year $50,000 loan, to be repaid in equal annual instalments. Interest on the loan would be 8.5 per cent and would be calculated on the loan balance at fiscal year end. The loan would be

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Buying a Block of Business

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A Marketing Plan

Marketing in the financial services industry was typically different than most marketing done for consumer goods and services. The major difference was the fact that the majority of clients did not choose a financial planner based on advertising. This meant that many new client leads came through word-ofmouth and referrals from current clients. Overall, Best’s marketing objectives were to reinforce the message of providing expertise and a focus on education to her current clients. She believed that doing so was the best way to maintain a satisfied client base and obtain referrals.
Best Financial sent out a newsletter to each of its clients twice a year. These letters provided clients with their account statements, news in the financial market, updates on Best Financial and information regarding upcoming client events. Additionally, Best typically offered her clients two events per year.
These events ranged from gardening classes to golf tournaments and varied in cost (all paid by Best
Financial). In the past, Best Financial had organized a referral contest wherein current clients who referred friends and family were entered in a draw to win a vacation. The last time Best had run this contest was three years ago, and it had drawn in about 10 new clients, which, when combined, were initially worth approximately $200,000 in assets. See Exhibit 6 for a breakdown of past and potential marketing costs.
One of Best Financial’s most prominent marketing tools used in the past was its radio feature spot. During the 90-second spot, Best would address common concerns and questions relating to current events in the financial industry. She believed this advertising helped position her as the expert in the market and that she should continue offering this feature spot. In the past, the feature was aired on The Fox, “Sarnia’s Lite
Hits” station; however, Sarnia also offered a rock music station, K106.3, as well as a recently launched country music station, CHOK 103.9 FM. See Exhibit 7 for listener profiles of each station. The radio spot aired multiple times each month and cost $625 a month for one station, regardless of which station. For the upcoming year, Best would need to decide which station or mix of stations would most adequately fulfil her objectives.
Best believed it was a good time to determine the company’s marketing activities for the remainder of the year. She wanted to investigate two new marketing tools: a website and a Yellow Pages advertisement.
Best Financial did not have a website, and Best wondered whether one could be used to service existing clients or draw in new clients. If she decided to have a website created, it would cost approximately
$3,000 to develop and $900 annually to maintain. She would also need to identify what type of information would be accessible on the website. Best had never placed a Yellow Pages advertisement in the past. If she could identify some key benefits to using this medium, she could justify spending the $285 annually. Since she was hoping to achieve more revenue growth in future years, Best wanted to investigate these marketing opportunities and any other possible promotional activities. She wanted to establish who she would target, what message she would communicate and which marketing tools she would use.

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issued on January 31, 2008, and the principal and interest payments would be paid on January 31 of each year. Best Financial would also incur a one-time legal fee in the amount of $5,000 in order to finalize the purchase. Page 8


Best knew she had a difficult task ahead of her. She had recently struggled with the company’s future strategy while writing a business plan. A thorough analysis of the business environment and her company’s past performance would allow her to project fiscal 2008 financial statements as accurately as possible. She planned to implement her decisions on March 1, 2008, and was anxious to see their effect on fiscal 2008 financial statements. Due to current business conditions and the loss of Young, sales growth on current business was expected to be half the rate of what was experienced in fiscal 2007. Best also predicted that fund management fees, meals and travel, office supplies and maintenance, and miscellaneous expenses would vary with sales, while all other expenses would be similar to fiscal 2007 amounts. Losing Young was a wake-up call for Best. To date, she had experienced success, but now she must act if
Best Financial was to maintain and, hopefully, grow its level of profitability. Although this was a large undertaking, Best was excited about the future benefits and financial rewards that these decisions could bring to her business.

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Page 9


Exhibit 1

1. Establish the client/planner engagement.
• Explain issues and concepts related to the overall financial planning process that are appropriate to you. • Explain the services he or she will provide and the process of planning and documentation.
• Clarify your responsibilities as a client.
• Clarify his or her responsibilities as your planner. This should include a discussion about how and by whom he or she will be compensated.
2. Gather client data and determine your goals and expectations.
• Obtain information about your financial resources and obligations through interviews or questionnaires. • Gather all the necessary documents before giving you the advice you need.
3. Clarify your present financial status and identify any problem areas and opportunities.
• Analyze your information to assess your current situation (cash flow, net worth, tax projections, etc.). • Identify any problem areas or opportunities with respect to your capital needs, risk management needs, investments, taxation, retirement planning , employee benefits, estate planning, and special needs. 4. Develop and present the financial plan.
• Develop and prepare a financial plan tailored to meet your goals and objectives, values, temperament and risk tolerance, while providing projections and recommendations.
• Present the plan to you and establish an appropriate review cycle.
5. Implement your financial plan.
• Assist you in implementing the recommendations discussed. This may involve co-ordinating contacts with other professionals such as investment funds sales representatives, accountants, insurance agents and lawyers.
6. Monitor the financial plan.
• Agree on who will monitor and evaluate whether your plan is helping you progress toward your goals. • Contact you to review the progress of the plan periodically and make adjustments to the recommendations required to help you achieve your goals.
Source:, November 30, 2008.

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Page 10


Exhibit 2

Net profit margin1
Sales growth


Net profit growth


Total asset growth


Debt to equity


Interest Coverage


Source: Annual Report 2007, Sun Life Financial Inc.

A report entitled “Competitive Forces in the Financial Planning Industry” by Glenn Kautt states that the average profit margins in the industry range from 14 per cent to 50 per cent after tax.

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Page 11


Exhibit 3




Mutual fund sales commissions
Mutual fund trailers
Life insurance sales
Other revenue
Total revenue

$ 83,740
$ 332,153


$ 81,688
$ 302,110


Advertising & promotion
Fund management fees
Interest expense
Meals and travel
Office supplies & maintenance
Professional fees
Salaries & wages
Agent error
Education & training
Bank charges
Total operating expenses

$ 11,862
$ 207,783


$ 13,014
$ 226,630


Net Earnings before tax

$ 124,370


$ 75,480






$ 103,227


$ 62,649



Income tax
Net Earnings After Tax
Source: Company files.

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For the years ending December 31, 2006 and 2007

Page 12


Exhibit 4

Current assets:
Marketable securities
Total current assets

$ 26,117

Long-term assets:
Office equipment
Less: Accum. amort., office equipment
Less: Accum. amort., vehicle
Total long-term assets

Accounts payable1
Line of credit
Total liabilities

Total Liabilities & Shareholder's Equity
Source: Company files.


Consists only of advertising and promotions costs.

$ 24,967
$ 34,661




Total Assets

Shareholder’s Equity
Common Stock
Retained Earnings
Total shareholder’s equity



$ 34,790


$ 62,679


$ 64,437

$ 1,234



$ 4,913



$ 62,679

$ 64,437

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As at December 31, 2006 and 2007

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Page 13

Source: Company files.


Exhibit 5


Page 14


Exhibit 6



Client newsletter (600 copies and postage)



Client event (average cost of one event)


Referral contest (includes prize)


Radio feature (per month, approximately 12, 90-second spots)
Website development (one-time)


Website updates and maintenance (annual)


Yellow Pages (annual)


Newspaper advertisement (per 3" x 4" ad)


Bus shelter advertisement (per month)


Source: Company files.

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Page 15


Exhibit 7
Type: News/Talk/Sports/Oldies
Weekly Listeners: 36,300

Type: Modern Rock
Weekly Listeners: 31,200

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Type: Adult Contemporary
Weekly Listeners: 38,100

Source: Blackburn Radio.…...

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