Clients With Benefits: How to Protect Against Would-Be Moochers

One of the downsides to running a personal service business is that friends and relatives often expect a discount. In the worst cases, they suggest you should provide advice for free. Often they do not have something of equivalent value to trade in return—so what could have been barter becomes a burden.

Perhaps it’s the economy or a frustration with low returns, but advisors report that increasingly they are getting the squeeze from people they know. These “friends” expect them to lead the way to many happy returns—without giving anything in return. They imply, “We’re blood, brother. I’d do this for you.”

On the other side of this dilemma are the enablers, advisors who believe that it is their obligation to discount their fees to close friends and relatives lest they be perceived poorly. Guilt or shame or the desire to be loved all contribute to the concession. Rarely do I hear advisors say the decision to give a break in fees was worth the pain.

So when an advisor recently asked me if he should give friends or relatives a discount, I casually surveyed other advisors to get their take. While not the most urgent of issues confronting advisory firms, each advisor said it was something they have struggled with. The topic was a familiar source of frustration, resentment and angst.

Not only did many advisors reveal that they do offer discounts for special clients, they also described a two-tier scheme for their regular clients: those who have been with them for a while and those who are new to the firm. While the friends and family quandary occasionally occurs, firms continuously struggle with the challenge of reconciling pricing with legacy clients. The solution requires discipline and courage.

Setting Boundaries

Advisors who had learned from experience provided me with some good ideas for engaging with close friends and relatives:

1. If you are inclined to discount, be clear as to whom this might apply: centers of influence, best friends and immediate family members, for example.
2. If you are not inclined to discount, or wish to limit this practice to a select group of people, develop a response to those who might have the cheek to ask for a break based on their relationship with you.
3. Limit the number of discounted relationships so that it doesn’t hurt you economically.
4. Treat these relatives and friends as you would any other client, with the same level of accountability on both sides, the same access to you and your staff for professional purposes, and the same discipline to terminate those who put you at risk or are abusive to your staff.

Be Clear

Creating a specific framework for giving a discount makes it easier for you to say no to those who do not fit into the special pool. Your parents or children obviously may qualify for some type of break, but beyond those situations, define parameters to avoid a policy of exceptions.

For example, centers of influence such as attorneys and CPAs may not have the accumulated wealth to qualify as clients, but because they refer valuable relationships it may make good business sense to give them a break.

Best friends and relatives, on the other hand, present a unique and awkward dilemma. You are exposed to some of their most intimate secrets, and this makes them vulnerable if not somewhat beholden to you. At the same time, your recommendations may push them out of their comfort zones—and sometimes may result in disappointment in the results. Are you confident enough in your process and these relationships to risk entering into professional agreements at any price, let alone a discount?