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Terminating the Problem Client

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Yes, some advisors think this is a nice problem to have—getting rid of clients. Actually, I have found sticking with the right kind of client is a huge part of being a successful advisor. That means to be very careful with how you are planting your garden, and when to do the necessary pruning.

Recently our COO Josh and I went through our entire client list and identified those clients who were (to put it nicely) very high maintenance.

Now don’t get me wrong—our practice is built around helping the high maintenance clients feel loved up and comfortable. Even I, the woman who had 12 hour-and-a-half meetings with a client before she pulled the trigger, has a breaking point. Yes, that point where you don’t care how valuable the relationship could be, you just don’t have the patience, the mental energy or the time to deal with this person sitting across the table another minute. You sense that even if you spend all the time in the world with them, they will never be happy. These are the ones to prune.

Here are a few lessons I have learned along the way.

Choose Carefully

Rule No. 1: Choose your clients carefully in the first place.

Our first meetings are a chance for me to interview prospective clients to see if they are a good fit for us. I never worry about showcasing our firm, because they wouldn’t be in this meeting if they hadn’t heard a lot of good things about us from their colleagues.

I spend a lot of time trying to get to know clients during the data intake. I want to know where they come from and how they make decisions about their money. Another issue: What kind of person are they, really, and will we be able to satisfy them? My overall goal is to only work with wonderful, fun clients, who refer us to lots of other people just like them.

Some great questions to try to rule out problems in the first place are:

  • What was the best investment you ever made, and why?

  • What was the worst investment, and why?

  • What kind of criteria are you using to pick a financial advisor?

  • If there were one thing I did that was sure to totally tank our relationship, what would it be?

  • Here is the big question I am silently asking myself during the initial meeting: Would I invite this person over to my house for a barbeque?

The answers tell me about their thoughts, their emotions and their personality traits. I also get a clue as to how they make important financial decisions. If they are placing all of their decisions based on returns, this is not a good client for us. Sure there will be years when we are ahead—and ones when we are not. Also, if this person is exhibiting difficult tendencies up front, it is not likely to get better as the relationship goes forward.

I like to keep their scorecard based on things we can control. I can control the client experience. I can’t control the market. We take clients who value the total experience and are fun to be with. We avoid the others.

I was presented with this situation a few years ago. My prospect, whom I’ll call Suzy, 30 years old, had finished her education within the past two years and was now making over $200,000 per year. She was single and had no children. On the surface, she looked like an ideal client. However, her brother, Brad, had just finished his undergraduate degree and was working at a major financial institution in the bond department.

Brad may have only been 21, but he had an opinion about everything. He didn’t like my 60% stock/40% bond suggestions for Suzy because he told her they were too risky! He suggested she needed a nice, safe investment, like a hedge fund! (I am not making this up!) Finally, after three or four meetings, Suzy says to me: “I am so confused. I don’t know what to do. I don’t whether I should believe you or my brother.”

I closed my file. Looked her right in the eye, and said: “That’s easy. You have to trust your brother. You are going to be seeing him for every holiday for the rest of your life—it is important to follow the advice of someone you trust. If you ever think we can help you—feel free to reach out to us in the future.” I happily walked her to the door.

This last weekend I was watching a local ballroom dance competition near our Midwest office. Much to my surprise, there was Suzy doing the foxtrot. I felt incredibly sorry for her: She was incredibly stiff and had a look of abject terror on her face the entire time. Needless to say she didn’t score very well. I whispered to my husband—she dances just the way she lives life: stiff and afraid. When I saw her later, she was embarrassingly tipsy. Thank goodness she followed my advice and works with her brother!

Cut Your Losses

Rule No. 2: Cut your losses early

Late last summer we brought on a DINK (double income, no kids) from Southern Cal. On the surface they appeared much more savvy about their money than our usual client. They were using a lot of Vanguard index funds. Usually when I find clients doing that kind of investing, they have done a lot of research about index funds in general and those with low internal fees.

The problems arose a few weeks ago when hubbie sends us an email complaining that our 80/20 portfolio didn’t line up with the returns on his S&P index fund. This was a huge eye-opener to me.

We had been through many meetings reviewing our investment style, comparing it to what they were currently doing and managing their expectations. Yes, they were quite smart, but I realized, belatedly, that they really didn’t really understand the basics about investing. I had assumed they had more depth of knowledge than they really did. Silly me. I reminded them that our funds were global, not solely in the U.S. and they had small companies as well as large in our portfolios. Apparently the implications of that didn’t sink in with them.

Today we had another meeting with them to review their questions. The gist of it will be obvious to anyone in our industry: We can’t compare apples to oranges—U.S. large cap to global diversified—and results for a quarter are not predictive of the future. I had even prepared my “cut ‘em loose script.”

I got to give them the script—which I share with you in case you might need it: “You know at the end of the day, I think it is important for you to feel comfortable with your advisor and their strategies. There are no hard feelings here. If you are not comfortable with us, we will be happy to transfer your account to another custodian so you can manage it yourself.”

Much to my surprise, the wife says: “No, we are comfortable with you! Hubbie just needed to understand the difference in the returns.”

So I don’t know if we keep this case or not. Frankly, I am OK either way, because if they stay, they will require a lot of attention. I don’t mind giving clients a lot of attention, if we can keep them happy. That’s what my next conversation with them will be about: What will it take for us to keep you happy?

So that brings us to our final rule.

Happiness Test

Rule No. 3: Can we keep them happy? When your clients are happy, your team is happy and you are happy, too. Isn’t that what it is all about?

Every day I go to work, is a party. I only take on wonderful clients who are a joy to be with and we also get to change their lives. It doesn’t get any better than this.


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