Pruning Your Book

The hardest part is deciding to do it. Frank Aiello remembers that moment in 1995. After six years in the business, Aiello had more than 400 clients. He was so tired of doing trades that he had to change something or get out of the business. So he went to a conference to think through the possibilities."I met someone there with a 1 billion book and only 10 clients," says Aiello, a ScotiaMcLeod rep

The hardest part is deciding to do it. Frank Aiello remembers that moment in 1995. After six years in the business, Aiello had more than 400 clients. He was so tired of doing trades that he had to change something or get out of the business. So he went to a conference to think through the possibilities.

"I met someone there with a §1 billion book and only 10 clients," says Aiello, a ScotiaMcLeod rep in Toronto. "After I heard how he did it, I immediately went back to my hotel room, called my office and said sign me up for a coach to teach me to cull my book."

Firing clients to grow business goes against everything a broker is taught, according to reps who have gone through the pruning process. "When you think of getting rid of a client, you then confront the fear that he might be a money fountain down the road," says Stephen Gresham of Gresham Consulting Group in Madison, Conn. Yet hanging on to that possibility means that brokers typically have books full of clients who are too old, too small or too one-dimensional to contribute much to their business, Gresham says.

Forget the 80/20 rule. "The reality is that 90% to 95% of your gross usually comes from 10% to 15% of your book," Gresham says.

Those who have cut back say the process takes time, but isn't nearly as painful as they expected. "The biggest surprise of my career was the response of clients who I decided to leave," says Glen Titan, an Everen Securities rep in Century City, Calif. "It was a love fest of support for the new direction of my business."

Mike White of Nesbitt Burns in Ottawa, Ontario, says pruning his book was "like a spiritual healing, dealing only with people I enjoy."

Getting StartedWhen Aiello returned from that conference in 1995, he decided to focus on managed money and serve only 75 clients with whom he could have significant relationships. He charted each client's assets compared with revenues and targeted the bottom 50 clients for possible pruning. He discovered in the process that his average account was §150,000, not §500,000 as he thought.

Aiello found three brokers at the firm who specialize in specific product areas--stocks, bonds and mutual funds. He matched each of his bottom 50 (minus a handful of sentimental favorites) with one of the three brokers he had chosen.

"I told these clients I was no longer going to be a broker," Aiello says. "I explained my new focus on money managers and how they work and told them as a result we needed to part ways." He gave them the name of the broker he felt would be a good match and said the broker would call in a few days.

Behind the scenes, Aiello reviewed the clients' histories with the brokers. The reps agreed to show their trading in the accounts to Aiello for one year to ensure they were staying on track with client goals.

Aiello continually culled his bottom 20 clients over 11/2 years, first establishing a §500,000 account minimum, then §1 million. "I did the math on the revenue generated per month on a §200,000 account and I couldn't afford it," he says. "A colleague asked me what happens if I get a referral from a top client and it's a §100,000 account? I told him it's my bus, I drive it. It's not fair to an existing client to take on the §100,000 client and dilute my service to them. It becomes a task of educating your referral sources on what you can and can't do."

Aiello's income dropped 60% during the pruning process. Only four of his original 400 clients remain with him. But now, both assets and income are higher on Aiello's book of 40 clients.

Finding More TimeFive years into switching to fees, Titan found that larger clients weren't getting enough of his time. So in 1996, the Everen rep sat down with a business coach to plot out how many of his 350 households he could move out.

He divided the typical client relationship into a 10-step portfolio management process and determined how long each step takes. With one assistant, Titan concluded he could work effectively with no more than 75 clients. He then kept all those who had §1 million in investable assets, but only if he enjoyed working with them.

"I told the clients I was leaving. Since I've been working with high-net-worth individuals, I wanted to provide more in-depth analysis of estates, so the fees I'd be charging wouldn't make economic sense for them," Titan says.

First, Titan identified successors both in and outside of Everen, looking for good personality matches. In client meetings he then described the broker he felt would be a nice fit and asked if the client wanted the broker to call. About half said yes. Titan has pared down to 40 clients.

With another broker it was the need for more time at home that prompted the pruning. John Cunningham of J.C. Bradford cut back his 1,500-account book two years ago. Both he and his assistant had new families and wanted more of an opportunity to enjoy them. Since long-term loyalty means a lot in the Southern culture of Louisville, Ky., he had to take a gentle approach.

"If you ask someone to be a client, you have a moral obligation to them," Cunningham says. "I'm not going to tell somebody, 'You don't have enough money, you have to go away.'"

At every regular review meeting, Cunningham gives each client a compatibility check. "I sit down and tell them where my business is going and ask if they feel comfortable with that," he says. "If they don't fit into any of my three managed money business models I say, 'We have to talk.'"

Cunningham moved his top asset client to another broker this year. The account list is down to 1,200. "Ideally, I'd love to duplicate my top 20 clients and have no more than 100 clients," he says.

Enjoying the ResultsThe first thing Aiello noticed when he cut 50 clients from his book was that his phone stopped ringing so often. Without a busy phone, he has improved his service by creating portfolio performance composites to supplement the firm's reports and hand delivering all quarterly reports. He is also clarifying client goals, doing year-end tax planning, making sure estate plans are updated and finding ways to help with charitable giving.

Aiello gets better service himself, too. "I can have half-hour conference calls with money managers because I now have clients who have significant assets with them," he says. "I get in front of accounts I never dreamed."

White noticed that once he pared his book down to 60, his clients no longer wanted to work with other brokers and have moved assets over to him. "Now we know clients intimately," he says. "When we can send out cards, we write letters with them. We can go the extra distance to help when a client has a crisis. We do special services now, like offer golf lessons, daylong investment seminars and hold CPR training. Then it was a book; now it's a practice."

Pruning your book is all about finding the proper focus, consultants say. Don't lose sight of the purpose: to give more service to clients and cause an increase in assets. Create the model of an ideal client, zero in on current clients who best match the model and determine the potential of those clients.

Many brokers use a coach to help them re-engineer and refocus their businesses. With the disclaimer that RR makes no endorsement, here are three consultants who work with firms and reps.

LEO PUSATERIPusateri Consulting and Training, Williamsville, N.Y.; 716/631-9860; E-mail: [email protected]

Pusateri offers a four-step consulting process that includes development of a long-range vision for your business and establishes a business and action plan.

Background: Former corporate trainer with Xerox Learning Systems and vice president of marketing for Elias Asset Management.

Key Corporate Clients: Dain Bosworth, Edward Jones, First of Michigan, Chase Manhattan Bank.

Objective: To help reps "compete in the increasingly commoditized world of retail investing."

STEVE SAENZ, CIMA, Paragon Resources, Atlanta; 404/873-0099; Web site: www.paragonnet.com

Saenz gets brokers to see their businesses made of "building blocks"--structure, people, systems, technology and image. The idea is to get each level right before moving up to the next.

Background: Broker and regional manager with Merrill Lynch. Managing director for Harris Bretall Sullivan and Smith.

Key Corporate Clients: Salomon Smith Barney, PaineWebber, Prudential Securities, Lockwood Financial, Financial Investment Network Corp.

Objective: To help advisers "achieve their financial goals without sacrificing their quality of life."

STEPHEN GRESHAM, The Gresham Co., Madison, Conn.; 203/245-1774; E-mail: [email protected]

Gresham works with brokers through corporate relationships with Conseco, Merrill Lynch and CNA Life. He occasionally works with other brokerage firms as well.

Background: Adviser to high-net-worth clients via independent practice. Sold to become an asset manager then a consultant.

Objective: To help brokers "serve clients better, become indispensable to wealthy families and eradicate competition before it has chance to attack."

When the time comes to trim a client out of your book, don't pick up the shears too quickly. That's the biggest mistake brokers make in cutting back their books, says Leo Pusateri, who runs a consulting and training firm in Williamsville, N.Y. Find a reason beyond wanting a more manageable client base. "Make sure you have a compelling, passionate message to bring to your clients," Pusateri says.

Think of the consequences before you fire a client, according to Stephen Gresham of Gresham Consulting Group in Madison, Conn. "The worst thing that can happen is the client tells the whole town you're a jerk for dumping him. If you can't find a way to truly thank the person you're firing, you're not ready to do it."

Some other tips for maintaining goodwill when you say goodbye:

* Understand exactly why you are making the move.

* Be honest and tell why you are changing your business.

* Explain how your business works. If you're moving to managed money, the stock trader will understand he or she no longer fits.

* Focus on quality of service. To provide the best service, you can only maintain a certain number of relationships. Those clients who have the most complex needs require more of your attention.

* Focus on the move being the result of a natural, inevitable growth of your skills.

* Develop several strategic alliances ahead of time with other brokers who represent different business styles.

* Break the news in person and do not apologize. Be upbeat about a new opportunity for them and thank them for their loyalty.

* Find other brokers who can give clients a relationship, not just add another account to their book.

* Offer to introduce them to another broker who is a good intellectual and emotional fit, and introduce the new broker in person.

* Review account details with the new broker.

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