Best Financial Services Inc.

This report is consistent with our signed Academic Integrity Form on file with the instructor.

Matt van den Boogaard
Emily Bedwell
Alla Fedorets
Saghi Ahmadi
David Merlo
Miguel Veloz
September 28, 2015
ENTR 3140 – S10

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Critical Issues
In order for Best Financial Services Inc. (BFSI) to attain a growth in revenue of 5%1 per year for
4 years and for Linda Best to maintain a healthy work-life balance (35 hours/week2 and retirement in 10 years) (Grasby and Dunn, 2009), the following issues need to be addressed:
•
•
•

How to diversify the aging target market to decrease the amount of lost revenue streams
How to address the current maximum capacity of clients in the extremely competitive environments How to gain a competitive advantage by achieving a score that is equal to or greater than private firms (as measured in the competitive matrix, see Exhibit 1) in the global economic depression Analysis
Over 50% of BFSI’s clients are aged 51 years old or older (Exhibit 2). This aging target market will be inclined to start withdrawing their investments throughout their retirement (Exhibit 3).
This is a major threat for BFSI because the company heavily relies on this declining market and will be losing revenue streams. BFSI has a major issue in that 57% of their clients are not making breakeven revenues (Exhibit 14). In addition, the smallest client segment is making the company the most money.
The financial industry in Sarnia is extremely competitive (Exhibit 5). Companies need to compete strategically and offer excellent customer service in order to survive. The company is also not spending enough time with each customer. On average, Linda Best spends half the amount of time she needs to spend with each client in order to provide excellent customer service
(Exhibit 4). She has too many clients and does not have enough time to deliver value to each customer. BFSI performs poorly compared to all their competitors in all key success factors for the financial industry (Exhibit 1). The company does not have any competitive advantages, which is extremely concerning given the competitive environment and the global economic recession that is occurring (Exhibit 5).

1

The gross net profit percentage was 64.77% from 2006 to 2007. Taking into consideration the critical issues that have been identified, the changing environment due to demographics, as well as the poor economic conditions due to the recession, this is a conservative projection.
2
35 hours is the estimated amount of time to work per week to provide Linda with a healthy work-life balance.

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Decision Criteria
•
•
•
•

Increase profits (40%) o Increase net profit by 5% per year for the next 4 years.
Provide Financial Security (20%) o Linda Best will be able to retire in 10 years.
Reduce Hours (20%) o Reduce Linda Best’s hours to 35 hours per week.
Client Profitability (20%) o All clients achieving breakeven revenues.

Options
Option #1: Hire a new advisor
Hiring a new advisor will decrease net income regardless of whether the new advisor sells
$650,000 or $800,000 in mutual funds (Exhibit 6). It will take some time for the new advisor to develop a reputation and the required skills to produce optimal results. In addition, this option has initial costs for training and development, and there is no guarantee that the new advisor will stay with BFSI after gaining knowledge in the industry (Exhibit 7).
However, the addition of the advisor will help in retaining clients, because it will allow Linda to transfer some of her clients so she can spend more time with her current clientele (Exhibit 7).
This option will also help Linda to achieve a better work life balance.
Option #2: Purchase a block of business
Buying a block of business will not bring an increase in net income right away, regardless of the client retention rate, and the initial cost is very high (Exhibit 8). Furthermore, Linda already manages 600 hundred clients and is nearing capacity, so she will not be able to handle the new clients on her own; therefore, adding new clients will reduce the quality of her work.
This option will immediately expand the client portfolio and it will allow for an increase in clients by referrals.
Option #3: Marketing Communications Plan
BFSI’s current marketing budget is not being used strategically; the budget was reduced by
$1,152 from 2006 to 2007, but revenues increased by nearly 10% over the same period (Grasby
& Dunn, 2009). Implementing a new plan will enable BFSI to better allocate their budget and attract a more specific market. BFSI’s would utilize radio advertisements to attract clients with

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higher incomes because these clients will have higher number of assets and a longer lifetime value (Exhibit 2). Sarnia’s Fox radio station has an estimated 38,100 total weekly listeners, with over 40% of them having incomes over $75,000 a year (Grasby & Dunn, 2009). The total annual cost for these advertisements will be $7500 (Exhibit 9).
Best Financial should also run an annual referral program to attract new clients, as referrals have been shown to be a highly effective form of retaining clients with a high rate of return. The referral program will cost $2500 per year (Exhibit 9).
The remainder of the marketing budget will be used on the website. With the financial advising industry becoming increasingly competitive (Exhibit 5), it is pertinent that companies stay up to date with the latest technologies in order to attract and retain clients (Exhibit 3). According to
Canadian Bankers Association (2015), “55 per cent of Canadians now use the Internet as their main means of banking”. Online portfolio access will drive down the number of hours needed per client, as Linda will not have to meet with a client every time they want to make changes to their portfolio.
The website can be used to replace the client newsletter, newspaper advertisements, and bus shelter advertisements. The website will have a one-time development cost of $3000, with a yearly maintenance cost of $900 (Exhibit 9). This is a very affordable option for Best Financial
Inc. as they have a very high current ratio and cash in the bank (Exhibit 10). If revenue goals are met and increase 5% per year, the annual maintenance fee would be 5.4% ($900/$16,607.65) of the increased revenue; the one time startup fee would be 18.06% ($3,000/$16,607) of the 5% revenue growth.
After one year, the website development cost will be put towards hosting two client events per year. These events will be crucial in building and maintaining strong relationships with clients.
The total cost of these events will be $3,200 per year. A financial breakdown of the marketing budget can be viewed in Exhibit 9.
Option #4: Reassessing and Reducing Clientele
Best Financial Services Inc. can reduce and reassess their clients to improve customer service, maintain hours per client, and increase profitability and future stability. The reduction can be completed at the same time as the reassessment to reduce loss of sales during the transition.
The portfolio will originally be reduced by 366 clients; these spots will be taken from low asset clients as shown in Exhibit (Exhibit 11). 66 of these newly emptied spots will then be refilled as shown in Exhibit (Exhibit 11). These reallocations will allow an increase in client assets to
$26,669,039 as shown in Exhibit (Exhibit 11). This increase will have an increase in commissions and improve profitability and stability in the future.

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Reducing clientele will allow more time per client while maintaining the current amount of 35 hours per week. Increasing each client’s time will allow each to receive a higher quality of work and be able to retain higher revenue clients as seen in Exhibit 4. Through this higher quality of work, clients will not only be retained but will also work towards improving the service level to compete with other firms.
Option #5: Offer Higher Risk Stocks
BFSI can begin offering high-risk stocks, which will increase competitiveness scores in the
“variety of services” and “high returns” categories on the competitive matrix (Exhibit 1), thus allowing the company to be more competitive in the market. In addition, offering stocks will increase the company’s revenue streams through broker fees and commissions from the sale of stocks (Trendshare, 2015). Finally, offering stocks would reduce the threat of substitutes
(Exhibit 5).
Adding high-risk stocks to BFSI’s services would require Linda to spend more time with each client. Assuming that each client would require an additional one hour to discuss their stock investments, Linda’s current service level would decrease, as she would not have enough time to deliver value to customers (Exhibit 4). As well, the company and its clients would be taking on a great deal of risk by trading high-risk stocks and clients may lose their investments; as a result,
BFSI’s revenues would be negatively affected and clients may leave to invest their funds elsewhere. Recommendation
BFSI should implement a marketing communications plan (Option #3) and reassess and reduce their current clientele (Option #4). By implementing these two options, BFSI will be able to compete in the highly competitive financial industry in Sarnia (Exhibit 12). The company will be able to offer more time and value to their more profitable clients, which will lead to future revenue growth. Linda will also be able to work reduced, 35-hour workweeks and have the ability to take early retirement in 10 years time.
One potential negative consequences of this option is that BFSI’s brand reputation could be sacrificed by refusing business with certain clientele. The company can reduce the risk of the brand reputation diminishing by mailing the clients informing them of all the changes. Linda
Best should also transfer all of the clients being let go to another financial institution and inform the clients that they are being taken care of.

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Exhibit 1: Competitive Matrix
Best Financial

Sun Life

Scotiabank

Private Practices

Variety of Services

-1 does not trade stocks and has much fewer offerings than major banks

+1
Has many product offerings

+1
Has many product offerings;
“one stop shop”

0
Have average number of product offerings, most offer stock trading

High Returns

-1
Low return on investment due to low risk

-1
Does not offer high risk investing 0
Some high risk investing but average returns based on high fees

+1
Most offer high risk investment and therefore higher returns than Best or big banks Brand Recognition/Image

-1
Relatively small and, low brand recognition

+1
Widely recognized

-1
Usually small, low brand recognition compared to big institutions

Personalized Services

0
Best is over capacity, tshe cannot provide as personalized service as people expect

0
Large organizations, cannot provide as personalized service as private practices

0
Large organizations, cannot provide as personalized service as private practices

+1
Provide more personalized services due to less clients and smaller organization size

-1
Best Financial does not have a website

+1
Offers online banking and portfolio access

+1
Offers online banking and portfolio access

0
At the minimum, have an online website -3

+1

+3

+1

Technology

Total

+1
Widely recognized

Conclusion: Best Financial scores lower than its competitors in all areas of the competitive matrix, therefore, it is lacking a differentiation strategy.

Exhibit 2: Customer Lifetime Value
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Exhibit 11: New Client Allocation

Conclusions – the change in clients to remove all with assets under $20,000 will improve Best Financial’s revenue. It will also lower the number of clients, leaving room for eventual growth, and address the current capacity issue.

Exhibit 12: Decision Criteria
Alternatives

Decision Criteria
Increase Net Profit by 5% /year for 4 years Weight
1.
Hire A
New Advisor

Retire in 10 Years

35 Hour Work Week

All Clients Achieving
Breakeven Revenue

Total

40%

20%

20%

20%

100%

1
No, profits will not increase as shown in
Exhibit 7

4
New advisor will be familiar with company and able to take over
Linda’s clients

4
New advisor can take on existing clients and reduce
Linda’s work load

1
New advisor will not affect
BFSI’s current client portfolio 2.2

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2.

Buy a
Block of
Business

1
Purchasing of a block of business will not increase profit, as shown in the Exibit..8.

1
The purchase of a block of business will not help Linda to retire in 10 years

1
Linda will have to work even more hours, as the purchase of a block of business will bring new clients

1
There is no certainty that with the purchase of a new business all the clients will break even

1

3. Marketing
Communicati
on Plan

5
Proper allocation of the marketing budget will attract high asset clients and drive profits 3
With the marketing plan keeping the company growing, Linda Best might be able to retire according to her plan in 10 years

5
Implementation of the website will reduce the total hours
Linda spends with each client

3
May or may not increase profitability of clients

4.9

4.
Reassessing
and Reducing
Clientele

5
Yes, removing clients with assets under
$20,000 will increase profits, as shown in
Exhibit 11

3

5
Yes, Linda will have less clients to manage

5
Yes, this option removes all non profitable clients

4.6

5. Offer HighRisk
Stocks

3
Possibly, but these are high risk investments so there is no guarantee

3

1
No, Linda will have to spend more time with each client

3
May or may not increase profitability of clients

2.6

Exhibit 13: SWOT (ENTR3140 S10 Fall 2015 Class)
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Opportunities
•
Technological advances in online banking and investing (Exhibit 3)
•
Stock prices lowering because of global recession (IBIS 2015)
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Threats
•
Target market may be inclined to start withdrawing mutual fund investments(Exhibit 3)
•
Global Economic Recession (Exhibit 3)
•
Porter’s analysis shows extreme competitive rivalry and harsh competitive forces in all areas. (Exhibit 5)

Exhibit 14: SMAT

Exhibit 15: Client Portfolio Analysis

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References
Elizabeth M.A. Grasby and Ian Dunn. Best Financial Services Inc. Case Study. Ivey
Management Services, 2009.
ENTR3140 S10 Fall 2015 Class. September 21, 2015.
"How Do Stock Brokers Make Money? | Trendshare." Trendshare: Find the Right Price for
Stocks. August 2, 2015. Accessed September 26, 2015. https://trendshare.org/how-toinvest/how-do-stock-brokers-make-money.
IBIS World. Industry Performance. 2015. http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=1312 (accessed
September 27, 2015).
National Post. Why you should fear the retiring Baby Boomer. Edited by Chris Taylor. January
13, 2012. http://business.financialpost.com/investing/why-you-should-fear-the-retiring-babyboomer (accessed September 25, 2015).
Ontario Securities Commission. Investment Funds & Structured Products. July 2015. https://www.osc.gov.on.ca/en/InvestmentFunds_index.htm (accessed September 25, 2015).
The Great Recession of. Encyclopaedia Britannica. 2008. http://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264.