Applying Pareto's Law

Morrow, Edwin P.
October 1996
Journal of Financial Planning;Oct96, Vol. 9 Issue 5, p89
Academic Journal
The article critically analyzes the application of Pareto's Law to financial planning, which states that 80 percent of benefits will be derived from 20 percent of the clients. The principles developed by Vilfredo Pareto, an Italian sociologist and economist, have been widely applied to various aspects of business and human behavior. Another application of Pareto's Law is that 80 percent of the problems will come from 20 percent of the clients. The cost of living for the financial planner and the planner's staff inexorably increases, certainly at the rate of inflation. As a financial planner matures, he or she wants more effective tools and service capacities, not just a contribution of the prior capacity. Gradually, the planner loses clients through death, disability, retirement, pre-retirement, dissatisfaction or dismissal. Many clients will grow but some will just not keep pace with early expectations. The way to keep top 20-percent clients happy and referring more persons like themselves is to develop a nurturing system.


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