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Take the Best, Leave the Rest

Take the Best, Leave the Rest

Switching firms can be a great time to get rid of your most troublesome - and least lucrative - clients

Financial advisors are often burdened with a few clients — or more — who are more trouble than they are worth. Maybe you work with some folks who have small accounts and, in the jargon of the business, like to “clip coupons,” insisting upon a meeting each and every time one of the bond's coupons mature. Or perhaps they call every time the market drops 20 points, demanding that you do something about it. There might even be a client or two in your book who likes to threaten to ditch you for a new advisor whenever their (often unrealistic) performance expectations are not met — or worse yet, to sue.

If you do have clients like these, they are probably more visible, and vocal, now than ever — when you least have time for their antics. It might do you and your business good to cut them out. With so many financial advisors switching to new firms these days, many of them are finding that the move is a perfect time to cull their books. In fact, this approach to client management, sometimes referred to as the “80/20 rule” — take 80 percent with you, leave the rest — is becoming quite popular with reps who switch.

Take the example of “Jason,” an FA from Merrill Lynch who was producing $1.6 million on $190 million in assets under management in mostly fee-based accounts. Of the 240 households he served, just 150 generated approximately 90 percent of his production. And so, in planning his move, he decided to leave behind 30 of his accounts. He chose to cull his book based purely on assets, firing those with less than $500,000 in their accounts — but many of these clients also happened to be among the most time-consuming in his book. His method was quite simple: He did not provide those clients with the account transfer forms (ACAT's) they would have needed to follow him to his new firm. Ultimately, these clients were divvied up among his former colleagues. Since his move in late 2008, Jason has found he has significantly more time to devote to his existing clients — and more time for prospecting, too.

So how do you position your intention to leave assets behind with the management of your prospective new employer? Be upfront about it when you are negotiating your move. Transition packages today are structured with two things in mind: duplicable production and assets under management. When an advisor is offered a deal to move to a new wirehouse, there will be an upfront component (anywhere from 100 percent to 140 percent or production) and usually a back end bonus calculated according to the assets transferred — this back-end reward can get as high as 100 percent if all of the advisor's assets come with him. But ultimately, it's the production that the firm cares about most.

Consider Matt and Tim. At their prior wirehouse firm, the team managed over $700 million with production just north of $5 million. Before they moved, they took a close look at their book of clients, and found they were spending a disproportionate amount of time on a number of small accounts that generated very little revenue. Some of the clients in this group had even filed minor complaints. In planning their move, they informed Tony, the manager of their prospective new office, that they planned to leave approximately $110 million of their assets behind. Tony was not bothered by their plan, because these accounts only generated about 5 percent of their production: Even without those assets, they expected to generate around $4.75 million at the new firm.

In the end, Matt and Tim received one of the highest deals on the street, with 125 percent upfront, and back-end bonuses equal to another 100 percent predicated on their ability to bring over all $590 million by the end of year three. They have already met their first hurdle by bringing over 80 percent of that $590 million after only 3 months. And they have already taken on some new higher net worth clients, too.

Writer's BIO:

Mindy Diamond
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting.

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