Several years ago, a client of financial advisor Laila Pence’s practice used foul language with her staff and called them stupid to their faces.
She recalls speaking to the client about it like it was yesterday, Pence said. She reminded him that her staff “is an extension of me” and asked him to come to her directly with any concerns. As the
To his credit, the client said he was sorry for berating the staff, that he had a bad day. The next thing he said, though, clinched her decision about their relationship.
“‘You're managing my inheritance. You have to do what I tell you.’ I was going to fire him anyway because of the abuse, and that one just tipped it,” Pence said. “When they do something wrong that gives you a sleepless night, that's the time to do it.”
A decision about how and when to fire a client — or parting ways with them, to put it more nicely — comes fraught with emotion toward friends and family, concerns about the lost accounts or even self-doubt as to whether the problem rises to that level. Still, planners should know there are many valid reasons to send clients away from a practice and simple methods of doing so that can help remove some of the difficulty, according to more than a half dozen advisors and coaches who spoke to Financial Planning.
The termination of a client relationship represents something of a rite of passage that every practice will eventually face, according to Cameo Roberson, a business coach and operations strategist for RIAs with
“That is a hard choice to make sometimes. If you're earlier on in your career, then the revenue component of that client is going to be a bigger factor,” Roberson said. “A problematic client isn't necessarily worth the revenue that they're paying you. They're more trouble than they're actually worth, and you'd be better served going out and finding a client who is a fit.”
A productivity drain
Practices grappling with a troublesome client are tangling with a subject that afflicts many advisors and taxes their often limited resources. In fact, about 35 practice management professionals including consultants, coaches and specialists at brokerages, RIA custodians and those in their own firms selected “serving too many non-ideal clients” as a major challenge to advisor productivity — the most-selected issue — in a
To understand why, you only need to understand the breakdown of how practices spend their time. Across all of the different channels in wealth management, client-facing activities comprise 53% of the work, with client meetings and preparing for them taking up more than 30% of their time on the job, according to Cerulli. The next-largest use of time, administrative tasks, amounts to just 22%. Advisory practices work with 142 clients per producing advisor, on average. They ought to choose their accounts wisely, Cerulli says.
“Many default to generic categories such as ‘retirees’ that are far too broad to have a meaningful application to their business development efforts or differentiation value,” Marina Shtyrkov, Cerulli’s associate director of wealth management, said in a statement. “Wealth management firms should encourage advisors to identify their niche early on and consider how they can uniquely service that segment of clients in a way that other advisors cannot.”
An advisory firm’s segmentation enables it to place clients into one of three groups, according to Shauna Mace, managing director of practice management for Independent Advisor Solutions by SEI. The client may be currently valuable, they could be profitable in the future or they might just not fit into the practice’s plans, she said.
“The idea of segmentation is a really important exercise that advisors should be generally doing once a year, if not every other year,” Mace said, suggesting planners ask themselves if they can support and provide meaningful advice to a given client, all things considered. “If you can't do that, then it's like, who are you actually helping here?”
When to let go
Advisors and other experts cite clients who fall outside of that definition as households that could take their business elsewhere, among other factors that suggest they should go. Being disrespectful to the staff represented the most frequently named rationale in FP’s interviews, just ahead of refusing to follow a planner’s advice or always questioning it. Clients who send emails and make phone calls at all hours in a panic over stock prices and portfolio values can be candidates to part ways as well. One other popular reason for letting go of clients relates to how practices shift over time, especially with the growing prominence of planning in recent decades.
About two years after Marguerita Cheng of Gaithersburg, Maryland-based
These days, she views all meetings with prospects as an interview on both ends and happily refers any clients to advisors who might serve them better if there is trouble on either side of the relationship. When people are difficult, advisors ought to remind themselves that they need not work with every client, and they “don't have to put up with it if you're not comfortable,” she said.
“It is OK to say ‘no.’ You're in control here,” Cheng said. “Life's short. If you're getting anxious and you're feeling the blood pressure when you see an email from them, it's not good for your mental health.”
If their name on a calendar prompts you to cringe, it also might be a good sign it’s time for them to go, agreed Michael Rose, an executive business coach with Carson Coaching. Eventually, advisors develop a greater ability to avoid potentially troublesome clients, he said.
“The longer that someone's in the business, the better they are at identifying, ‘You and I are going to have a problem,’” said Rose. “The better they are on the front end and have discipline about only working with the ideal client, the less firing one will become an issue.”
Still, advisors considering ending a client relationship must think clearly about the potential ramifications if the household is a friend or family member, acts as a referral source or poses reputational risk due to their influence among certain groups or geographical areas, Rose noted.
In addition, if an advisor finds herself being fired by the client, that loss “can turn into a blessing in disguise,” too, according to planner Zaneilia Harris of Washington, D.C.-area practice
“It hurts. It makes you question your capability and qualifications,” Harris said in an email. “You are not a failure. Instead, it helps you grow and re-evaluate your service offering, your approach to working with clients, your customer service, if you have the right people doing the right things within your practice. Or it could reveal that you are overwhelmed and need help with customer care needs within your practice.”
How to let go
Many practices have built out procedures for how to handle difficult clients. At Keene, New Hampshire-based
“This year, we did send some letters out requesting that they move the account,” Poodiack said. “We did it in a way that was from the perspective that our practice has evolved and we had to make a difficult decision, but we just felt that we had to look at what clients are utilizing our services and which clients are going to benefit from all those services.”
Rose of Carson Coaching recommends practices handle the decision about the relationship like the performance improvement plans issued by a company’s human resources division. The advisor can first explain how the client isn’t meeting their expectations, revisit the subject in 30 days and, if the problems persist for another month, ask them to leave the practice.
Advisors should consider broaching the topic first in a letter to the client about the difficulty, according to Roberson of Atlas Park Consulting. Advisors could record any follow-up meetings for additional documentation. Just as in so many areas of client relationships, the paper trail or an electronic version of it could prove very handy down the line, she said. The letter should state two or three areas where the advisor has helped the client, explain the logistical process of transferring the account and list methods of finding a new practice.
“If you have that draft created, in the chance that it happens again, you have a framework. You don't have to recreate the wheel,” Roberson said, noting that compliance matters may sometimes arise after a termination. “You have documented that process. We don't anticipate that happening, but we never know, and you want to make sure that you're covering yourself.”
Mace of SEI advises practices to leave the clients with some key messages on their way out the door as well, ensuring that they’re “personal and relevant to help them understand and guide them,” she said.
“The most important thing is to remind them that their best interest is top of mind,” Mace said. “If there is that misalignment, although it may be difficult or uncomfortable, we really want to see you succeed. … Making it about that client is always going to go over well or better.”
Setting up for future success
On the other side of the tough and sometimes awkward conversations, advisors could notice something has shifted in their practices, even though it is “a hard decision” to cut off ties with a client, said Pence of Pence Wealth. Advisors will “feel so good after you do it,” she said.
“In the long run, if you don't have peace and you don't have serenity in your business, then you're doing something wrong,” Pence said. “It drains you so much when you have an awful client.”
Letting go of that account will pay dividends in the future, agreed Poodiack of Poodiack Wealth.
“The sooner you're able to set your standard and start to follow that, the enjoyment of what you do for work will be better,” she said. “When you see their number come up, you don't want to talk to them. If you have clients that are like that, generally that's an indication that maybe they're not a fit for some reason. And what is the reason?”
