In a recent article, I explored the importance of identifying and then releasing inappropriate clients. This article will cover exactly how to let those clients go.
Let’s take a quick step back. If you want to build a successful business, you must commit to being successful on purpose. Find the time to think about your practice as a business, including rigorously evaluating where you are now, where you want to go, and how to close that gap.
Unfortunately, most advisors have many inappropriate clients in their books. These clients are inactive, unprofitable, or problematic (troublesome, quarrelsome, divisive, disproportionately time consuming). Releasing these clients will free you to work with clients who are profitable and enjoyable, who both better fit your ideal client profile and are inherently a pleasure to work with.
To successfully release inappropriate clients, focus on your process. You must first acknowledge that you have such clients; then identify who they are; then consider the various methods for releasing them; and then do what it takes to make one of the recommended methods work.
Methods for Releasing Inappropriate Clients
The table on the next page shows five methods for releasing inappropriate clients. One method, while quite common, is simply not a good idea. Two methods are occasionally workable, but tend to have more downsides than upsides. One method is clearly the best option, and one method should only be used as a last resort.
A Common Poor Choice
Unfortunately, most advisors default to a method that I cannot recommend. These advisors “quiet-file” their inappropriate clients, sometimes actually moving files to a different physical or digital folder. They hope that by stopping all communications, the clients will fade away over time. But there are three problems here.
First, ignoring an unprofitable client doesn’t make that client profitable. Second, if the client is divisive, quarrelsome, a time-and-services hog, or otherwise problematic (for you or your staff), that client will not just fade away, but will probably return time and again to demand your attention. Third, ignoring clients can put you at compliance and legal risk. A case can always be made that “quiet-filing” is equivalent to willfully ignoring your clients’ portfolios, life changes and perhaps suitability, allowing them to languish and deteriorate. If you have a CFP or similar designation suggesting ongoing responsibility or an enhanced fiduciary duty, be even more careful here.