The subject of profitability can be difficult for some advisors. In fact, it’s not as black and white as you may think. You may be making a good living, covering your expenses and providing necessary services to people who really need your help. However, less profitable clients can pose problems in areas such as portfolio management and ongoing service. Most important, it can impact your firm valuation when it comes time to sell. Should that sale be required suddenly and unexpectedly, it may even put your family’s well-being at risk.

In previous segments in this series of blogs from the coaches at Peak Advisor ALlicance, we’ve talked about the importance of segmenting your clients in order to understand which relationships are profitable and which are not. The next step is to establish your client breakeven point in order to move towards a more profitable business. You do this by declaring an account minimum for any new clients to ensure at least a 50%  profit margin, which should roughly equal twice your breakeven number. 

During the segmentation process, you may have determined some of your existing clients are not profitable and you can no longer afford to work with them. So what are your options for responsibly dealing with these clients? 

Four  Good Options for Handling Less Profitable Clients:

  1. Reassign Through Your BD
    If you’re a BD rep, give them back to your broker/dealer who will reassign them to another advisor.
     
  2. Sell or Give Away
    Find another advisor—someone you trust who will provide value and client service equal to the services you provide—to buy their business. Or you can even give them away to another advisor
  3. Modify Fees
    Modify your fee structure so the clients either become more profitable clients or they choose to leave on their own. Remember, any time you make changes to your fee structure, be sure to factor in the community you serve. In some places word can spread quickly and you do not want to get the reputation for being greedy.
  4. Hire an Advisor
    Possibly the most attractive option would be to hire an associate wealth advisor. You may ask, “But why would I hire and add to my cost structure in order to serve unprofitable clients?” You’d do so because an associate wealth advisor can generate more capacity for the firm and lead to more clients and new assets, plus free up more of your time to focus on what’s truly important in the bigger picture of your firm, and a better work/life balance. An associate wealth advisor would have the time to work with your less-profitable clients and turn them into more profitable clients. Wouldn’t this be the best-case scenario? 

After you’ve completed your client segmentation process and determined your less profitable relationships, remember you have options for dealing with your smaller clients. If you simply can’t cut the cord, figuring out another solution can sometimes lead to other benefits that pay off down the road.

Forcing yourself through this exercise may be difficult, but taking action sooner rather than later will guarantee a healthier practice in the long run.