Conventional wisdom has long held that advisors have to focus their practices around their most profitable clients if they’re to enjoy success. Why, experts ask, devote time to the bottom tier of one’s clientele, the ‘C’ and ‘D’ clients, when you earn potentially far more in commissions and fees catering to ‘A’ and ‘B’ clients: individuals who are wealthier, and who generate more repeat business and referrals to other high achievers in their asset class.

One answer, say those who dissent from this view, is that there are ways to service profitably and cost effectively the Cs and Ds. Among them: outsourcing to a third-party provider that boasts marketing expertise and economies of scale; and delegating servicing to internal advisors who are best suited to working with low-margin clients.

Advisors also cite regulatory, competitive, contractual and ethical considerations as reasons for holding on to low-margin clients. But perhaps the most compelling of all is the prospect of converting a C or D prospect into a high-margin A client–thanks in part to the advisor’s expert counsel.

“When we looked at our top 50 clients during a strategic planning session, we found that from 20% to 25% at one time occupied the market tier that we were considering selling to an outside firm,” says E.W. “Woody” Young, a financial planner and president of Quest Capital Management, Dallas, Texas. “Had we executed a sale 10 years ago, we would no longer have had these clients or the individuals they referred us to. This was a revelation for us.”

A decade ago, those sterling clients looked much like the Cs and Ds explored in a study of U.S. and Canadian advisors that ReMark North America, Toronto, Ont., released in June. In the U.S., the D clients (individuals who purchase one product and have no post-sale interaction with the producer) constitute 28% of advisors’ client base, require 14% of their time and generate just 12% of the revenue. The numbers for C clients (those to whom “some” products, planning or services were sold) are little better. They account on average for 19% of U.S. advisors’ clients, demand 17% of the advisors’ time and produce 12% of revenue.

By contrast, A clients (they generate most of the revenue, consistently ask for advice and purchase at least three products) account for 26% of clients, require 40% of advisors’ time and contribute to 51% of revenue. Among B clients, the numbers are 27%, 29% and 24%, respectively.

“Clearly, you’re rewarded for spending more time with your A and B clients and have little incentive to work with the Cs and Ds,” says ReMark President Brad Smith. “So, it’s a game. The smarter advisors who know they can’t service everybody are distancing themselves from their bottom tier. That’s common sense.”

And not only because these clients are not generating much new business. Byren Innes, a senior vice president and director of Toronto-based NewLink Group, which conducted the study on behalf of ReMark, says that C and D clients refer less often than As and Bs. (On average, advisors acquire 25% and 15% of clients through referrals from A and B clients, respectively. This compares with 5% and 2% from Cs and Ds.

“Advisors have at least to segment their clients from a service point of view, which may entail some hard decisions,” says Innes. “The reality is there aren’t enough hours in the day to service everyone equally.”

Yet, when asked what percentage of their C clients would buy more from them if they had more time to meet these clients, Canadian respondents say 38% and U.S. respondents say 37%. These numbers correlate with a study that ReMark concluded in 2005, which shows that 46% of Canadians and 16% of Americans who own a life insurance policy and are “orphans” (i.e., policyholders who no longer have a relationship with an insurance professional) are “very” or “somewhat” likely to purchase additional coverage in the next two years.

Question is, how can advisors secure this new business cost efficiently and not get sidetracked from their most profitable customers? For Quest Capital Management, the answer lay in handing off less profitable clients (individuals with less than $250,000 in investable assets) to junior partners who are less well versed in the complex planning solutions required by wealthier clients. Quest planners now also devote less time working with C and D clients.

A reduced service level needn’t equate, however, with scaled back communications. Joslyn Ewart, a financial planner and principal of Entrust Financial, Wayne, Pa., says all of her clients receive personalized “touch points” throughout the year. These include account statements and a monthly newsletter that serves both to inform and inspire clients to act on planning needs. Ewart also makes time personally to answer client calls–even when the issue is minor.

“Unless I’m in a meeting, I’ll want to take the call to talk about their accounts and how things are going for them generally,” says Ewart. “I’m very flexible about this. It takes all of two minutes and the effect is remarkable.”

Also sure to have an impact, adds Smith, is a policyholder marketing campaign offered through a third-party provider. ReMark, for example, will custom advertise products and services to designated clients by phone, e-mail and direct mail. The marketing campaign requires no investment from advisors, who receive 25% of resulting sales.

Some of those transactions could involve up-and-coming clients whom the advisor once accorded low priority.

Says Young: “One of our clients, a dentist, didn’t have any money [to invest] when he started his practice. Our initial thought was to tell him to call back when he got some. But the planner involved wanted the dentist to develop good financial habits and so agreed to work with him. Within four years, this dentist was netting $1 million a year. In retrospect, the planner made the right decision.”