Less Is More

The decision to let clients go generally happens in waves. In the first wave, an advisor might take the bottom 20% to 25% of the book, which may only represent 1% to 5% of revenue. In the next quartile, examine the effort you expend. Begin by identifying clients on which you expend the highest effort but yield the lowest revenue. Provided the firm is making enough money, when you bring in a new client at the top of your book, then you can let go a number of your low-performing clients, or simply choose to stay revenue-neutral. The goal, however, is to reduce the number of clients, so that you can deliver amazing performance–the “Wow” factor–to those who remain. (Part two of this series will explore how to do just that.)

Step 2: Prepare the Transition

Once you have identified the clients you wish to disengage from, you need to select another advisor who can service these clients. Forget limiting your actions to only your legal or professional obligations; your clients expect you to put their fiduciary interests ahead of your own. They will appreciate your going the extra mile to ensure they receive appropriate financial counseling.

Many advisors are tempted to retain a partial interest in the future revenue from these clients. However, in order to limit the call on your attention and responsibility going forward, you should fully disengage from all connections.

There are many solutions to the question of where to put these clients. Some firms are large enough where the senior advisor can reassign the clients to a junior associate. Some advisors have found third parties either outside their firm, or within their company but in another office who willing to take on new clients.

John Barrett, an advisor in Milwaukee with Northwestern Mutual who is 37 years old and the father of three boys, eliminated more than 1,000 clients. He first whittled his book of business to 120 clients and finally to 56 by finding a 24-year-old newly minted CFP at a local bank to take on his transitioned clients. A recent college graduate in finance, the CFP went from $0 to $350,000 in annual production overnight and has since grown the business.

Watt in Waukesha took a slightly different tack. With five other advisors within her firm, she was able to use a team-based approach where she handed off many of the smaller clients to junior members of the team.

“We found those ‘C’ clients we wanted to keep and repositioned their portfolios into a leveraged account using pre-packaged solutions,” she said. Doing so freed advisors from portfolio management so they could provide personal client support.

Downsizing still meant eliminating nearly 150 ‘D’ clients However, since doing so in 2005, the firm has grown from $100 million in AUM to $225 million today. The client base has also grown, but only by 55%, compared to the 125% growth in AUM. The firm’s average client wealth totals between $225,000 and $325,000, but the firm owner’s average client wealth more than doubled over the three-year period, from $340,000 to $715,000.

Now the firm owner and her team of five advisors are keeping track of their time in five-minute increments. She plans on tracking time through an entire review cycle to discover how much of their day they’re spending on clients and on which clients. The data will drive decisions to either release more clients or revise the fee schedule.

“Prior to this process, we were doing well,” the owner said. “However, I really felt that we needed to have a more disciplined approach to grow the business. We couldn’t just take everyone in.”

Step 3: Disconnect

Ultimately, the advisor has to sever some relationships. I’ve found that a letter works best. For most clients, you’ll simply tell them that you are moving toward wealth management and that you must now charge a minimum fee. Tell them that it doesn’t appear they’ll need that level of service, so you have arranged to move them to another advisor. The letter should be short and to the point.

The advisor from Vancouver who wondered what he’d done to himself, says he received just three calls the week after mailing his letter. One was a loud, “How dare you?” Another demanded to stay. A third client just wanted to hear it firsthand. Later, another half-dozen clients called to wish him congratulations.

The advisor’s client list shrank from 450 to 250, but his assets under management nearly doubled, from $160 million to over $300 million.

“My advice is, ‘Close your eyes and jump,’” this 44-year-old advisor says. “If you really want to improve, you have to do things that are uncomfortable.”

Steve Moore is president of Moore Solutions and has 10 years’ affiliation with Russell Investments, advising the Tacoma, Washington-based firm in the area of advisor and registered representative practice management. A former NFL coach, he can be reached at [email protected].