Firing Clients

It is at once the simplest and most complex question a rep can ask: How many clients are too many? Clearly, a rep cannot service an unlimited number of customers at least not effectively. Still, it's not as though an alarm sounds when the customer base grows too large: Bwoop! Bwoop! You've exceeded your limit! Rather, reps describe a creeping uneasiness that tells them when they've taken on too much

It is at once the simplest and most complex question a rep can ask: How many clients are too many?

Clearly, a rep cannot service an unlimited number of customers — at least not effectively. Still, it's not as though an alarm sounds when the customer base grows too large: “Bwoop! Bwoop! You've exceeded your limit!” Rather, reps describe a creeping uneasiness that tells them when they've taken on too much — a feeling of expending too much energy on the wrong sorts of service. And many are now confronting this feeling in an unexpected way: by firing clients they deem unworthy of their effort.

Heresy, you say. Dropping clients goes against a rep's every instinct. After all, it's hard to win new clients, and letting them go in the name of improving your practice seems counter-intuitive.

But, as any rep will tell you, the Pareto Principle (also known as the “80-20 Rule”) rings painfully true in the financial advisory business: A majority of production hails from a minority of clients. The average rep has about 538, according to the SIA — a number that has decreased every year this decade — obviously, your book can become awfully unwieldy. (Firms like Merrill Lynch are trying to limit the number of clients per broker, often by breaking up brokers into teams.) As such, making the most of a book — and of your time — increasingly means altering its makeup so that the amount of time spent servicing each client is commensurate with that client's production numbers.

When the Juice Isn't Worth the Squeeze

D. Scott Kimball was just starting out as a rep when he realized his business was in a strange place: His book was stable, but it felt increasingly unmanageable. The problem was one of time. Certain customers placed outsized demands on him, and he quickly realized he was serving them to the detriment of others.

“I was in a state of frustration,” Kimball says. “I wasn't happy with the job I was doing for my clients, and they weren't happy with me either.” He realized a change was necessary.

He sat down one week and made a list of all his clients, sorting them not by total assets, but by how much they had paid him over the last three years. (“It's not important to have a $50 million client who isn't paying you,” he says. “That's just another drain on time.”) Then, with a few strokes of a pen, he slashed his client list down to what he deemed a most manageable number: 50.

The move was not without its pain. In the year following the wheat-chaff separation, Kimball took a 35-to-40 percent hit in production. But eight months later, he felt a momentum shift that told him he'd made the right decision. In the succeeding year, his production tripled, Kimball says.

Kimball (who wrote a book about his experience called, Top Gun Financial Sales, Dearborn Trade Publishing, $24.50) says such a move requires a certain brand of cold-bloodedness. After all, less-profitable clients might very well be nice people. Further, the very thing that argues for dropping them — say, the outsize amount of face time they require — might also have created a tight client-advisor bond. Still, if the book-paring process is to be done well, such considerations must be set aside.

When Kimball reorganized his book, he called each of the chosen 50 and told them what he was up to. To a person they reacted positively, and with good reason. He says now he is able to focus on them full-time, expending “as much as 10 times” more energy on each of those high-net-worth clients as he did in the past.

This doesn't mean he has stopped looking for new customers. “I'm out there cold-calling every day, like I always have,” Kimball says. “You can never stop prospecting. I just have a better idea of what kind of client I'm looking for now.”

Without low-producing clients sucking up his time, he has become a better broker — and a richer one.

Kimball admits his approach isn't for every rep, but he stresses the value of finding the clients you absolutely must have, and devoting your work time to them. “It's more important than anything I've ever done professionally.”

Join the Club

Kimball is hardly alone in his pursuit of productive clients. Though his approach does not specifically aim to cut mom-and-pop clients in favor of wealthy ones (after all, some smaller clients generate income without requiring much advisor support), that is often what happens in practice.

Some firms have experimented with making book-weeding part of standard company practice. Edward Jones, for instance, trains its newest brokers on the “Goodknight Plan.” Named for the retired broker who founded it, the plan requires experienced brokers to choose to populate a company house account with clients — presumably their lowest-producing clients. After a period of transition (for both client and advisor), clients from this house account are distributed to brokers-in-training, who, presumably have more time to devote to the low-producing clients.

Though the transition period can be rough, the end result can benefit all parties. The experienced broker sheds a burdensome account; the young broker gets easy access to a new client; the client gets more personal attention, though from a less experienced advisor.

Of course, that's a perfect-world scenario, in which all elements are in place for an easy transition, and the client barely notices much has changed at all. In the real world, dropping clients can be an ugly thing.

One Wachovia broker says when he dropped a client for, as he termed it, “lack of assets,” the client became angry and, in a kind of reverse referral, began telling some of his other clients that she was “cast off.”

Another broker, from Morgan Keegan, confessed to having grown attached to some of his long-time clients, and vice versa. This introduced an emotional aspect to the breakup that rendered getting rid of those clients “more trouble that it was worth.”

Kevin McKinley, a Registered Rep. columnist and author of Make Your Kid a Millionaire (Fireside, $13.00) says such a scenario calls for kid gloves. “If an advisor's book is built with local, wealthy individuals who run in the same circle, a few dissatisfied clients can ruin a career,” he says.

Committing to Cutting

If you buy into the notion of firing select clients, where is the best place to start? The first move is setting some specific client-production guidelines, which should factor in the amount of support each client requires. If it can be managed, Kimball advises setting up a Goodknight-like team that can cater to a wide range of client types. When a client falls out of a lead broker's production sights, he can be passed on to another broker for whom the client might be a better fit.

In the absence of such a team, the cutting gets a lot more straightforward: You must simply tell the client that you no longer wish to serve them. It's a tough conversation, but one that doesn't have to go badly.

“If you handle it right, they're actually flattered,” says one broker. “You just have to let them know that you feel you can't meet their needs in the way they deserve to have them met.”

Still, he admits, “Some can still be upset, and that's understandable.”

Most agree that choosing the right clients to cut is the most important part of this process, and that is anything but an exact science, because it brings into play the notion of potential. To put it more succinctly: Predicting which of today's low-producing clients will blossom into top-shelf producers is a bit of a crapshoot.

Further, production isn't always king for many brokers.

“Hey, I like to make money just as much as the next person, and the bottom line is always a big determinant, especially for firms in tough times,” McKinley says. “But I get as much satisfaction in being an important part of people's lives. Regardless of how much money I make, I need that satisfaction as well.”

And if you're going to do it by the numbers, McKinley says, the founder of Holiday Inn hotels has something to say to you: “You can cater to rich people, and I'll take the rest. The good Lord made more of them.”

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