All in the Family: Keeping Smaller Clients Is Better Than Not

In my blog last week, I wrote about the bad karma created by “pre-screening clients,” because nobody likes to hear that they “aren’t good enough,” and consequently aren’t going to think — or speak — well of an advisor who sends that message.

Instead, I suggested that advisors take all prospect meetings. If someone isn’t a good fit for your firm, actively help them find an advisor who is. The good will you generate will more than make up for your “wasted” time.

Today, I’d like to talk about the other side of that problem: what to do about clients that your business has outgrown and have become unprofitable to service. Until recently, most independent firm owners simply kept those clients on, considering them a form of pro bono work.

(Related: The Four People Advisors Need on Their Team Before Trouble Starts)

However, these days, with many owners focusing on either substantial growth or increasing business value for an eventual sale, the “pro bono” model is becoming less acceptable. And, as resources are allocated elsewhere, service quality tends to fall — obviously a lose/lose. Here are some alternatives, along with pros and cons of each.

Set them free. This is by far the most popular solution because it requires the least amount of, well, everything; time, effort, resources, capital, etc. Unfortunately, like many “easy” solutions, it also falls pretty far into bad karma territory. In fact, it has every element of the above-mentioned “pre-screening” approach, with the added negative that these are usually people with whom you and your firm have had long relationships.

While it’s tempting to simply look at how much you’ll save every year by not working with these clients, that figure will undoubtedly be over-shadowed by the amount of ill will you’ll generate in your community.

Refer them to another advisor or appropriate resource. While this is certainly a better alternative than simply cutting them loose, it still sends the not-so-subtle message of “we don’t want you anymore” that many people find a turn-off. Although this can be a good alternative to simply pre-screening smaller prospects, it’s a bit trickier when dealing with existing clients. In most cases, I usually come down on the side of spending some extra effort to find a better solution.

The better solution — create your own smaller client service model. These days, the available technology makes it easy to create a platform that makes even the smallest of clients economically viable for virtually all independent advisory businesses. It may take a bit of effort on somebody’s part, but the cost is reasonable, and is outweighed by the benefits. Not only can you keep your smaller clients, who have a habit of turning into larger clients, but you’ll also attract more of them — which can become a pipeline of future full-service clients.

The biggest caveat to the tech solution is that, despite what most advisors fantasize, a tech platform is not going to attract thousands of clients and make a windfall. At least, not without the marketing muscle of a large tech company behind it.

Another option would be to adopt the new, and growing millennial advisory model, (see my September Investment Advisor column, “It’s Not Them, It’s You: Millennials Demand a New Business Model,” in which the advisor, who charges a retainer of $150-$220 a month or so, simply tells the clients what to do, usually over the phone or internet. The clients are responsible for implementing that guidance, and calling back when they need more advice.)

Regardless of what tech model you choose to use, I find that advisory businesses that make the effort to create a platform to keep their smaller clients do a lot better in the long run than those who simply cut them loose or send them to another advisor.

--- Read These Millennial Advisors Are Killing It With Younger Clients on ThinkAdvisor. 

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