WealthManagement Magazine

Bye, Bye

Saying good-bye to clients isn't easy for most brokers. But paring your book to upgrade your clientele doesn't have to create hard feelings. Here's how some brokers did it.After 15 years of sharpening his skills, gathering assets and adding clients to his book, Scott Reed noticed something that disturbed him. He was constantly running around putting out fires for smaller clients."I'd be on my heels,

Saying good-bye to clients isn't easy for most brokers. But paring your book to upgrade your clientele doesn't have to create hard feelings. Here's how some brokers did it.

After 15 years of sharpening his skills, gathering assets and adding clients to his book, Scott Reed noticed something that disturbed him. He was constantly running around putting out fires for smaller clients.

"I'd be on my heels, every day," says Reed, a broker with Hilliard Lyons in Tupelo, Miss.

And that's not fair to anyone, he says. It's not fair to him, to the firm that has invested in his career or to the larger clients who get neglected.

"I've been in this business 15 years, and I owe Hilliard Lyons something for that," Reed says. "And what I owe them is to produce at a level they expect me to produce at. In order for me to do that, I have to have a certain amount of assets under management."

After trimming his book and transferring smaller clients to beginners in the branch, Reed says the benefits are apparent. He is free to service his larger accounts better and pursue others, the junior brokers are jump-starting their careers with inherited assets, and his smaller clients are receiving more personal attention than ever before.

Brokers committed to fee-based business especially say that trimming the book is important.

"Once you go to investment management through fee-based compensation, time becomes a precious commodity," says a Morgan Stanley Dean Witter rep in New Jersey who has a large fee business. "Those [transactional] clients who are not cost-effective from a time standpoint start stealing your time, and therefore, your money." The right thing to do is find another broker who will thoroughly service those accounts, he says.

Emotional Sticking Points But brokers don't like to pare their books. They get caught up in the emotions of rejecting clients. The most common objections are:

"What about those clients I started with 15 years ago? I owe them some loyalty, right?"

Yes, you do owe them some loyalty, say brokers who have been through the process of shedding accounts. But you also owe them the level of personal attention they deserve. And that's the precise reason you are reassigning the clients to other brokers.

"You're not firing your clients," says one broker. "You're firing yourself."

"But my smaller clients might come into money."

Sure, they can win the lottery, says broker coach Steve Saenz with Paragon Resources in Atlanta. But the chances are slim.

Besides, if they do come into wealth or build up their portfolios, they might very well come back to the broker who specializes in big money - you. In fact, some will bring in more money right away when they hear you have a new, higher minimum.

"What if word gets around that I'm too big for my britches?"

Says Saenz, "I actually had one client tell me, `Steve, you don't understand. I see my clients in line at the grocery store. I sit next to them in church. If the word gets out that I'm too big for my britches, I'm toast in this small town!'"

When Saenz hears this kind of comment, he asks reps how long it's been since they've spoken to smaller accounts. Reluctantly, brokers usually confess that it has been years.

"Then I say, `Good Lord, what do you think they're saying about you in the community now?'" Saenz says.

Painless Break Ups Brokers who have benched clients say the experience is usually tougher on the broker than on the client. Here are three basic approaches to gracefully tell clients you can't handle their business anymore.

The Clean Break One way to effect a clean break is to simply transfer clients to another broker in your office.

This past year, Dain Rauscher's Maryann Bast and her team members began sending letters to smaller clients, telling them they were reassigning accounts under a certain size to junior brokers.

Initially, the minimum amount was $100,000, established shortly after working up a business plan with broker coach Matt Oechsli. And later the bar was upped to $250,000.

The letter explains the business analysis process the team went through and their subsequent decision to drop smaller accounts. It emphasizes that the move is strictly professional - nothing personal.

Although Bast recognizes the importance of sticking closely to her plan, she also allows some exceptions, including referrals from influential clients and at least one existing client who suffered through some emotional pain during the year. "It's not easy to give away clients after 21 years of always taking accounts - especially if they are referred to you," Bast says.

But in the midst of the process, a funny thing happened: Roughly one out of every 10 of those small investors suddenly discovered more money to invest with her, says Bast, who is based in Madison, Wis.

"We gave them the opportunity to bring in additional funds, and quite a few did," she says. "They upgraded themselves."

Ultimately, the team hopes to pare back to about 900 clients and is considering the possibility of bumping the new account minimum up to $500,000 to meet that goal, Bast says.

Her team is the largest producing female-led group at Dain Rauscher, with gross production of more than $2 million. The team includes partners Bast and Lauri Droster, and brokers Mike Welter and Jeremy Schwab.

The Joint Production Number You don't have to cut off clients abruptly. Instead, you can establish a joint production number with another broker and work out a revenue-sharing arrangement. For example, over a three-year period, you could split revenue 50-50 the first year, 75-25 the second and 100-0 the third year, Saenz suggests. This way, your name still appears on statements and clients are weaned away gradually.

Scott Reed and his partner, John Hardy, gave away 100 smaller clients in October and planned to distribute another 100 accounts to junior brokers in December. Some clients receive a breakup letter, others receive a phone call, Reed says.

Reed and Hardy set up a production number to track the reassigned accounts, splitting the revenue with the junior brokers 50-50 the first year and then handing the account over the second.

"Once we get to the point where we feel like we're servicing all the clients we've got, and we have the time to invest in our business, that's when we'll stop cutting," Reed says.

After 15 years of getting to know clients personally, trimming some was painful, Reed says. "It is really hard to reassign accounts you've had for years and years and years. If I didn't believe that we were putting them in a better position, then it would be impossible to do.

"But the fact is, we're in the office all the time. We tell them they still have access to us, and that we'll keep an eye on their account for the first year or two to make sure there's a smooth transition."

Reed and Hardy now have more time to handle larger accounts. They've set new minimum account-size requirements (which Reed declines to specify), and are rejecting prospects who don't meet the new minimums.

Hardy says the goal is to whittle the team's list of more than 2,000 clients down to about 500. "We have had a difficult decision to make, but we felt this would allow us to significantly improve our consulting practice," Hardy says.

The team's gross production was about $800,000 in 2000, down slightly as they migrate toward more fee business. Assets under management are about $135 million.

Still, Reed says his ego tells him that he should cling to every client he ever acquired. "We have some folks that we really didn't want to leave, but it was the right thing to do," he says. "I can be the best manager of money in the country, but if I'm not spending the amount of time on accounts that I should, I'm not helping my clients."

How did customers react? Reed says he received six comments from reassigned clients, "and none of them were bad."

The Internal Transfer Another option is to keep the assets under your control (and within your production number) by hiring a salaried "relationship manager" to handle smaller accounts.

Bob Nachman and partner Ben Norwood at First Union Securities in Greenville, S.C., hired Series 7 registered rep Maura Copsey to handle a portion of their client base. She's receiving a salary while Nachman and Norwood transfer about 10 accounts a week to her book. The team has about $235 million in assets under management.

"Most of our clients liked the attention we have given them in the past," Nachman says. "In some cases, smaller clients told us they've always been amazed that we give them the attention they get."

Nachman explains the addition of Copsey as another way the team intends to enhance client relationships and service. He concludes, "[Clients have] trusted us in the past, so they're going to trust us with this decision also."

Have a look at two sample letters for use in reassigning smaller accounts.

Steve Saenz, a broker coach and president of Paragon Resources in Atlanta, suggests telling smaller, transaction-heavy clients that they've been transferred to another broker with a letter worded something like this:

Dear Mr. Client: I am writing to tell you that we are changing the nature of our business. As you may already know, we have been privileged over the past few years to offer our clients the benefits of private portfolio management. Going forward, we plan to concentrate on this element of our business.

We value you as our client, but our change in focus will make it increasingly difficult for us to give you the level of service you expect and deserve. I have a solution, however. His name is [insert broker's name here].

[Broker] is a colleague of mine who is committed to doing transactional business. He is an experienced professional with a proven track record. I wholeheartedly recommend him for his integrity and commitment to client service. I would like to make an introduction for you. I will be calling you shortly to arrange the meeting.

Broker coach Matt Bolka, with Quality of Business Training Programs in Blowing Rock, N.C., says the breakup should always be in writing and should always be reviewed by the legal department. "Always use the same format, so there is no discrimination," he says. Bolka recommends a letter like this:

Dear Mr. Client: After [insert number] years of providing financial consulting and investment services to a diverse group of clients, I find the focus of my business shifting.

Times are changing rapidly, and the financial services business is no exception. My attention is now on providing [describe services X, Y and Z] to clients with a minimum account size of [$XXX,XXX], income of [$XXX,XXX] and a net worth of [$XXX,XXX].

You have been a valued client so it is with mixed emotions that I am implementing these changes. It has been a pleasure to serve you over the years, and I would like to take this opportunity to express my gratitude. I can honestly say that I have learned as much from you as I hope I have given in return.

It is also with great enthusiasm that I introduce you to [insert associate's name]. He/she is a colleague of mine with [insert number] years of experience in the financial services business. He/she has agreed to service your account and will be in touch with you in the next few months via telephone and/or by letter.

I trust him/her implicitly with my clients. You will be in good hands. Mr./Ms. Associate offers all the same services I offer, as well as [specify other services A, B and C].

I encourage you to seek his/her advice and take advantage of his/her expertise. Should you need immediate assistance, Mr./Ms. Associate can be reached at [insert phone number].

I will, of course, continue to be available for the next few months and on a selected basis thereafter. Once again, I'd like to thank you for your business and for the opportunity to add to the quality of your life. I am confident that Mr./Ms. Associate can help take you to the next level, advising you in virtually any area of [describe services X, Y and Z].

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