WealthManagement Magazine
Making the Move, Keeping the Clients

Making the Move, Keeping the Clients

If you're thinking about switching firms, consider this: Now's the perfect time to rid yourself of unprofitable clients and those who cause you to cringe every time




Making the Move, Keeping the Clients

If you’re thinking about switching firms, consider this: Now’s the perfect time to rid yourself of unprofitable clients and those who cause you to cringe every time their phone number pops up on your caller ID.

“You can only handle so many clients,” says Justin Krane, president of Krane Financial Solutions LLC, Los Angeles, CA, who used his move to an independent broker/dealer in 2008 as an opportunity to improve the quality of his book.

“It’s kind of like when you have a closet that’s full of suits. You may have to give a suit away if you get a better suit,” says Krane, who recently started his own registered investment advisor (RIA) in Los Angeles and used the second move as another to improve his book.

Indeed, if you are using the move as an opportunity to encourage only certain clients to follow, you’re not alone. Sixty-six percent of advisors used a change of firm for this purpose, according to the most recent Advisor Evolution Study, conducted by Registered Rep. and TD AMERITRADE Institutional in the first quarter of 2010.

According to the study, advisors considered several factors when determining which clients to encourage moving their accounts with them. Seventy-three percent of respondents cited the length of the relationship; another 73 percent cited the ease of the relationship.

Meanwhile, in cases where clients were not asked to move, a difficult client relationship was cited by 86 percent of advisors and a non-profitable client relationship was cited by 60 percent of respondents.

There is, of course, a strategic reason that drives the decision to weed out clients, namely so that advisors can stay focused on their business vision and grow their business in a thoughtful way. Clients that don’t fit the model tend to distract from those that do and weaken an advisor’s practice.

When Dorie Rosenband left her broker/dealer in March 2009 to establish And Wealth Partners, a New York City registered investment advisor, she focused on three things in order to choose which customer relationships to pursue.

Attitude was the first. Clients had to be easy to work with—thereby eliminating the aggravation factor—and they had to really want to work with her. Second, they had to have enough assets to be able to pay her minimum fee. Lastly, she chose people who she felt would be strong advocates for her and her business.

Going through this process left Rosenband with 20 clients to reach out to from a pool of 100. “I left 80 percent of my revenue behind, so that’s a big decision,” she says.

When Jon Wakely, co-founder of Boston-based PW Global Advisors, left his former wirehouse firm, he and his partner decided to focus on clients who brought in more than $1 million of assets to manage. They didn’t pursue clients who fell below that threshold aggressively. Nor did they pursue those who were more difficult to work with or required a lot of hand-holding.

“We knew that our time was going to be valuable and we weren’t going to be able to service everybody, and it would be unfair to our larger clients to dilute the time that we did have available,” Wakely says.

According to the Advisor Evolution Study, most clients moved within the first three months, with an average 61 percent of clients moving over during that period. Overall, 73 percent of clients moved to the new firm by the end of the first year. What’s more, 76 percent of advisors said their clients were supportive of their move, while only 18 percent said clients were apprehensive.

In Wakely’s case, clients were generally receptive. More than 50 percent of his clients were willing to sign up with the new firm—no questions asked. Others wanted to know whether the fees were going to be the same, who was the custodian and what services they were going to get compared to what they had before, he says.

Rosenband found that clients didn’t initially understand the concept of fee only. “I had to learn quickly that industry terms didn’t resonate with Main Street people.” That said, despite their initial concern and confusion, all 20 of the clients she pursued moved their accounts to her new firm.

John M. Krambeer, chief executive and founder of Camden Capital Management, a fee-only RIA based in El Segundo, CA, met with some angst in terms of how the costs would change. As a result, he tried to be completely transparent, laying out for clients exactly what they were paying in the past and comparing it to what they’d be paying in the new model. It took only a phone call or one good lunch meeting to convince some clients. For others it required two or three meetings to get the client to feel comfortable, he says.

According to the Advisor Evolution Study, most respondents used more than one method to contact clients once they were legally allowed to do so. The biggest percentage, 79 percent, cited personal phone calls, while 54 percent scheduled in-person meetings, and 48 percent sent personal letters.

Wakely of PW Global Advisors resigned from his former wirehouse firm on a Friday and spent that night calling clients. Starting on Saturday and over the next few days, he took a handful of flights up and down the Eastern Seaboard to meet personally with them. Time consuming though it was, the strategy worked. All the clients that he hoped would join the new firm did.

After Ed Hausgen, president of Hausgen Wealth Management in Mount Pleasant, S.C., left his former broker/dealer, he placed an announcement in the local newspaper. He had a non-compete agreement with his old firm so he couldn’t call them, but his top few clients saw the announcement and starting calling him. “If you do the right thing for the client, the client’s going to reach you,” Hausgen says. [Remember, whenever you leave a firm, it’s important to work with legal counsel particularly as it relates to the client transition process.]

Hausgen did receive calls from old clients that he didn’t really want anymore. He just told them they were in good hands at the bank and should consider keeping their accounts there. “Obviously, it’s an uncomfortable conversion, but when you’re looking to build your business, it’s a necessary step,” he says.

“It’s not like I’m firing them, I’m just not taking them with me.”

Questions or feedback? Please email us at [email protected].

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