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Portfolio > Asset Managers

Listen Up, Advisors: Only Fire Clients When It Makes Sense

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One of my former clients had been an advisor for decades, and came to us to help him grow his firm. But I could never get him to focus on growth. Instead, no matter what we talked about, or what plans we agreed on, he would always read an article or talk to a friend or attend a conference, and go back to “building a well-oiled machine” as he called it: reorganizing operations, upgrading technology, streamlining client service processes, and managing his client base—which amounted to periodically “firing” one or two of his larger clients, who didn’t fit perfectly into his service model. 

I worked with him for five years, and in all that time, his firm lingered around $500,000 a year in revenues. Because he wouldn’t focus on growth, we were never able to hire the people we needed to build the firm—and he canceled out the few new clients we were able to attract, by firing some of existing clients. Over the years, there have been a number of articles and speakers talking about when a client has crossed the line and needs to be “fired,” and how to go about it. But I’ve never seen anyone talk about what I’ve learned are the two most important factors in this difficult decision: hiring and timing.

We’ve come to realize that most client “firings” could have been prevented by “hiring” the right clients. In our client firms, we recommend not taking on anyone as a client if they aren’t a “fit” with the firm’s culture and core values, such as: respect for other people; an appreciation for the services provided or being cooperative about sending information and doing what’s needed on their end. We say they must be honest, ethical, and fit within the firm culture, and sometimes we say they must be ‘fun,’ or serious, or friendly, etc. Sure, if a client constantly breaks one or more of a firm’s core values—particularly when several employees complain about that client—then we consider firing them. But by taking the right clients, the issue of “firing” them rarely comes up. 

With one exception: we don’t recommend “firing” clients until a firm gets to between $500,000-$600,000 in annual revenues. The practical reality is that growth puts you in a position to be choosey (which also applies to taking on new clients). Until a growth-oriented firm reaches this point, its primary mission is to deliver high-quality client services to as many clients as possible. That’s because an advisory firm needs to reach this critical mass to have the resources to support going to the next level—and beyond. Before that, we only fire if a client has become such a liability that they require immediate termination (are abusive, overly demanding, overly critical, dishonest, etc.) 

A few years ago, one of our owner-advisors had a client with $30 million in assets. We’d known for a long time he wasn’t a good client: he was demanding, inconsiderate, rude and not much fun to work with. But he was the small firm’s largest client, representing a substantial portion of the firm’s AUM.  So we accommodated him within reason: occasionally drawing the line, but most of the time, bending over backward to keep him happy.

At the same time, we worked on increasing client referrals and growing the firm. It took a while to get some momentum, but we finally started to see substantial growth over the past six to eight months. The difficult client’s assets became a much smaller percentage of the firm’s overall AUM, while the time staffers spent dealing with him became a hindrance to firm growth. Then it became clear we didn’t need to carry this burden any longer—and we fired him.

Out of economic necessity, owners who want to grow their smaller firms need to take almost every new client who comes in the door. But once their firm is positioned to grow and starts to take off, it’s time to start weeding out those clients who are holding them back. 


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