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?