When to Let Go

An advisor recently made an innocent online inquiry into the best way to release unprofitable clients. Immediately, the advisor was hammered by a slew of negative and even hostile message board responses. Other advisors accused him of being uncaring and unfeeling, of not looking out for the best interest of all his clients, and of being overly focused on making money.

What hogwash! Such a foolhardy and self-limiting “holier-than-thou” attitude trumpets at least two fundamental errors.

First, it ignores the fact that the inquiring advisor is running a business, and is in business to make a profit. Despite the old joke, if you’re losing money on your clients, you simply can’t make it up on volume. Your time, which is absolutely finite and limited, must be guarded jealously and used wisely. You must therefore spend it with those clients who generate the greatest revenue and profitability. To pretend that you should be doing anything else is simply self-delusory.

Second, if the advisor’s Golden Rule is “Know and do well by thy client,” the implication here is that even an advisor who properly releases inappropriate clients is somehow not doing well by those clients. But as I’ll explain, letting go of inappropriate clients is almost always better for those clients, as well as for you and your other clients. There really is no conflict of interest here, especially when inappropriate clients are properly released and moved on to other, better-suited, advisors.

Who’s Inappropriate?

There are two complementary approaches for determining which clients are inappropriate. Under the “positive approach,” you define an ideal client profile — typically a specific niche of high-net-worth clients to whom you add substantial value — and then systematically determine whether your existing clients fit this profile. While account size and profitability are crucial, other key factors include age, location, type of career and industry, and shared client/advisor interests.

The “negative approach” enumerates clients to avoid, including these:

o Clients who are abusive to you or to your staff

o Clients with whom you share no personal chemistry and simply don’t connect

o Clients who are part of the downside of the “Pareto Principle” or the “80-20″ rule: They generate 80 percent of your problems and take 80 percent of your staff time, but generate only 20 percent of your revenue and profit.

o Clients who started with you long ago, but who have never added assets and are clearly unprofitable

Be true to yourself as you use both approaches to segment your existing clientele. While almost all advisors start by gathering clients with few qualifications (if they can fog a mirror and write a check that clears), advisors whose books today include every client they’ve ever had probably aren’t doing that well. If you’ve been in business for 10 or 20 years, just as you should have upgraded your products and services over time, you should have upgraded your clientele as well. If you haven’t, determine whom to let go.

Overcoming Reluctance

You may be reluctant to release even clearly inappropriate clients. Advisors who’ve long been with a client sometimes say, “I could never let him go; he needs me.” If you have such an inappropriate client, ask yourself when you last met with him, whether you know what his most pressing needs are, or even how many children he has. Typically, such long-timers aren’t really clients — they are customers who you did business with once, but who are now just names in a filing cabinet or database. The truth is, you aren’t providing those clients with ongoing advice and services because you’re no longer the right advisor for them. Not only are they inappropriate clients, but you’re an inappropriate advisor. Keeping clients to receive on-going trail commissions without providing them with any service is not in their best interest, or yours.