The recent
InvestmentNews Top Advisory Firm Summit presented findings from benchmarking studies and research on trends in the industry. The good news? Many firms seem to be embracing
best practices for choosing and keeping the right clients, from setting ideal client standards and minimums, to segmenting clients and aligning services with these different segments.
The not-so-good news? Firms both large and small struggle to end relationships with clients who are no longer a good fit. Why?
Why advisers hang on to poor-fit clients
Well, for starters, we're human. It doesn't feel good to tell people you aren't going to help them anymore. So many don't. There may be some other influences — subconscious or not:
It's seen as a lifelong relationship. Our personal value systems affect our perception of responsibility, especially when it comes to helping individuals pursue goals that impact their standard of living. Staying "married" to the wrong client is unfair to your other clients, however, as well as to your team.
No data tell them otherwise. Some advisers simply
don't know their profitability per household. The process requires energy as well as access to technology to support the analysis. Not taking the time to understand your book can stifle your firm's growth.
Wishful thinking. Maybe that D client will inherit a large sum of money and turn into an A client. It could happen, right? This logic is similar to staking your retirement savings on winning the Mega Millions jackpot (the odds of which are 1 in 302 million).
[Recommended video: Joni Youngwirth: Factors that make clients the best fit for an advice firm]
Looking out for your client
If you need to move on from a client relationship, there are ways to break the news constructively and communicate that you are looking out for your client's best interest:
The services we offer today don't align well with your needs. If your firm caters to clients with complex estate planning needs, and you frequently pull in the estate attorney, insurance agent, and CPA, the client with a savings shortfall is like a fish out of water.
Ask yourself whether your firm can truly support this kind of client. Do you attend conferences that focus on
supporting clients who will run out of money during their lifetime? Are you aware of and involved with health and human services these clients can take advantage of? If not, you're not the adviser for them. To help these clients transition, consider offering your services pro bono for six months while they search for a new adviser.
Our fees are not cost-effective for your financial situation. If your firm focuses on comprehensive planning and charges a fee for that work, some clients may not want or need to pay for those additional services. Recommend the client transfer accounts to another firm that offers a more cost-effective solution and be sure
to offer suggestions for where the client might look.
We put respect for our clients first. Explaining you are dedicated to ensuring that no client of the firm subsidizes the work for another client is a way of communicating that the firm loses money on that client. Assure the client you are eager to facilitate a seamless transition of assets to another firm. If the client still wants to stay with you, communicate that certain services would be scaled back in the future.
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Succession planning where the adviser keeps working?]
We're transitioning you to a new adviser. Some advisers delegate D clients to a new associate adviser. The approach is risky, however, as it often leads to the associate adviser's dissatisfaction and even departure from the firm. A list of clients you don't have strong relationships with is not much better than a phone book. If you do wish to pursue this approach, commit to making 20% of client calls together. You can delegate the rest but temper your expectations of the ultimate outcome.
Ending a client relationship will never be easy but choosing to work only with those clients for whom you can provide exceptional quality will help you improve both your professional and personal well-being. Whenever you have a difficult conversation, remember to stay positive, focus on your strengths, and offer a collaborative solution.
[More: 9 signs it's time to fire your client]
Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network.
