As Julie Murphy Casserly can tell you, the customer isn't always right. Casserly, who runs JMC Wealth Management in Chicago, realized recently that a new client with a $750,000 account was going to drive her crazy — and that the money wasn't worth it. Unnerved by the market downturn, the new client immediately began making frequent — and nasty — calls to Casserly and her staff. She regularly threatened to take her money elsewhere, and checked up on Casserly's staff behind their backs to make sure they were transferring her accounts correctly.
After several months of this, Casserly, who manages about $35 million in assets, took a good look at her employees and realized that, “They were white knuckled every time they had to deal with the person,” she says. So, Casserly called her client and suggested the woman find an advisor more to her liking. “We were bending over backwards for her, but nothing was good enough,” she says. “And she was taking time away from our other clients.”
Firing a client may be just about the last thing you want to do as an advisor. But there are occasions when it can't be avoided. And that's especially true during rocky times such as these — when previously benign clients may become unhinged or, quite simply, too much to handle. In addition, during both up and down markets, often the only way to grow your business efficiently is to winnow away the smallest and least profitable accounts in your book — which, of course, means giving a certain number of them the boot.
But getting rid of clients is a fragile undertaking. For one thing, it means losing revenue. As important, you risk damaging your reputation. “Imagine what happens when you ask your client to leave. What are they going to tell other people about you?” says Philip Palaveev, president of Fusion Advisor Network, an Elmsford, N.Y.-based network of advisors. “The biggest asset advisors have is their reputation.” It can be especially tricky in a small community, where word is likely to spread fast about anything you do.
That's why you need to go about the process of determining whether to fire a client and how to pull the trigger especially carefully — being quite sure about the circumstances in which such action is necessary and then using an objective, efficient process to make it happen.
In general, there are two situations that may necessitate your getting rid of a client: The first one is a matter of business strategy. To get your practice to the next level, you may have to start focusing only on accounts that are a certain size or bigger. And that will require not serving clients who don't meet your minimum. In addition, if you have more than, say, 150 accounts, you may also need to reduce the number of clients in your book in order to step up the quality of service you provide.
After you've pinpointed the clients who don't meet your requirements, you need to send a letter to them diplomatically explaining that they have to find another advisor. Of course, it's best not to reveal that it's a matter of how much money they have. Rather, phrase the correspondence in terms that make it a decision aimed at benefiting the account: It's all about the client's — not your — needs. “Be humble,” says Julie Littlechild, president of Advisor Impact, a New York-based coaching firm specializing in financial advisors.
Take Robert Enright, a partner with Burton/Enright Group, a Walnut Creek, Calif., firm with about $267 million in assets. On the advice of a business coach, he recently analyzed his client list and decided to fire about 200 accounts. Then, he penned a letter to them, being careful to emphasize the benefits for the client. Thanks to increased compliance issues and staffing changes, he wrote, the client would be better served with a “staff that could be more accommodating to their ongoing requirements.” Says Enright, “I put the onus on myself.”
It's also a good idea to include either the names of possible replacements or a sentence offering to provide a referral to a possible replacement. These replacement referrals can include junior advisors in the practice, other colleagues in your branch or even associates in other firms. In some cases, you might be able to find advisors who actually specialize in serving cast-offs from larger companies. If you mention specific advisors, however, be sure to include at least three, according to Enright. Otherwise, you might be accused of steering clients to a particular individual, something that could land you in legal trouble down the line. In fact, it's best to show the letter to a compliance department or lawyer, just to be safe, suggests Enright.
Chances are, many of those clients will be accounts that provide trailing fees but little else — people with whom you haven't had much contact. For those accounts, a letter will suffice. For others, you or an assistant will need to make a follow-up call.
Losers And Keepers
The toughest task for most advisors is firing long-time clients. “The biggest hurdle we've seen is a general sense of guilt,” says Littlechild. Her advice is to remember that the move isn't a value judgment — it's a business decision. At the same time, you don't have to get rid of every long-standing relationship that fails to meet a minimum account size. In fact, one approach is to weigh a number of factors, including how much attention an account requires, when deciding who should be removed. “If a client isn't providing any aggravation, don't fire them,” says Barry Levy, managing director of Fusion. “It's a goodwill issue.”
When Enright decided to rethink his account minimums, for example, he analyzed his client base to see how much revenue each account generated and the service it required. He ended up cutting the cord primarily on accounts that were under $1 million, and also ate up too much of his own or his staff's time.
Getting rid of unproductive clients is not something you can do overnight. Randal Langdon, branch manager for Raymond James in Atlanta, points to a four-person team that, about two years ago, decided to change its approach to an intensive “holistic” tack involving a day-long initial meeting. As you'd expect, they also targeted high-net-worth clients. But the team spent 18 months pinpointing and contacting the 200 clients who didn't fit the new paradigm. “It's a slow, painstaking effort,” says Langdon.
If none of this appeals to you, there's another, less-direct route: You can institute a new higher minimum fee. Again, you'll need to explain your rationale in a letter and then try to follow up with a call, if possible. While that's not the most efficient approach, according to practice management experts, it does eliminate the need for you to choose which clients to eliminate.
The second kind of client who may need firing is one who is just too difficult to handle. This type runs the gamut from individuals who are actually abusive, to those who simply don't trust you, to adult children trying to force a parent to do something that's not in his or her best interest. “If you feel a knot in your stomach whenever you hear from them, that's a sign you shouldn't be serving them,” says Mark Goulston, a Los Angeles coach specializing in financial advisors. “Life is too short to have to deal with people like that.” As Casserly did, also make sure to consider your staff's response to clients when deciding whether to pull the plug.
Perhaps the most dangerous type of client in this category is the one who's potentially litigious. In that case, you probably want to move as quickly as possible. Marilyn Littlejohn, branch manager of Raymond James in St. Petersburg, Fla., for example, points to a broker who, several years ago, asked her for her advice. He had a client with about $10 million in assets, a considerable portion of the advisor's $50 million in assets. But, due to comments the man had made over a period of a few months, the advisor had come to realize the client had a penchant for suing service providers — and that he could very well end up being next on the list. “He told me, he just didn't have a good feeling about the guy,” she says. So, Littlejohn gave him her blessing to fire the client. The advisor was able to make up for the lost revenue and now has close to $100 million in assets.
As with clients who don't meet a new account minimum, you also should think about sending a letter to the difficult client. That's in addition to maintaining other records of your interactions, in case there's a complaint. But, no matter how unpleasant the task, it's best to begin with either a phone call or a face-to-face talk. Make it brief and avoid providing too many details, recommends Littlejohn. “Just say I don't think it's a fit,” she says. “You don't have to be more specific.”
Or, if appropriate, point to one particular problematic issue. During the last market downturn, in 2002, Casserly got off to a bad start with a client who was appalled that the firm couldn't provide an 800 number. The client, worth about $1.2 million, grudgingly agreed to hire Casserly, but the woman never seemed satisfied after that. Each time they talked, she had a different complaint and the same unpleasant tone of voice. After a year, Casserly decided she'd had enough, called the client, and suggested she find a wirehouse with a toll-free number. The proposal was accepted and Casserly helped the woman find a suitable brokerage firm.
If you're not the boss, there's another step to take. Before you do anything, talk to your branch manager or a senior colleague, partly because you may need that individual to back you up or simply step in. “I've had situations that turned into a screaming match and I had to intervene as an impartial third party,” says Langdon.
He recalls an advisor whose client became increasingly irate after the market began heading south, calling almost every day, often asking the same questions each time, but with an increasingly accusatory tone. At his wits end, the advisor finally suggested to the client that he move his $100,000 account elsewhere — a proposal that went over well, until the man realized he would have to pay closeout fees. After a new series of belligerent calls, Langdon stepped in and had an administrative manager with a particularly deft touch deal with the client. Eventually, they worked out a compromise.
Even when you're firing problem clients, you can still often suggest replacements, however. Just make sure the new advisor understands the potential risk. Remember: One advisor's nemesis may be another person's ideal client. And be happy it's someone else's headache.