For years I have worked with advisors who bemoaned clients they cannot stand, but they never terminate the relationship for one reason or another.
Often, they don’t want to give up the revenue—bad answer. They fear that word might get out and it could damage their reputation—bad answer. Or my favorite excuse, the advisor just does not want to deal with the angst of terminating a relationship—worst answer ever.
And of course, we’ve all read the industry consultants who say that advisors should focus on the best clients only, usually the largest, claiming profitability reasons. I cannot recall seeing any study that used real data tracking the true profitability of every single client an advisor has.
As a service business, I’ve never heard of an advisory firm using a time billing software system like a law firm or CPA, so how would you even know the hours you put into a client to justify firing the client? Unless you have such a system, forget thinking about profitability per client.
The 4 reasons to fire
So what are the reasons to fire a client? Here are four legitmate causes:
1. The client does not take your critical advice
This is the big one, and a recent story from a friend hammered this one home for me. My friend is the client, and should be fired by his current advisor. He insists on investing in a certain type of security that gives him a very high level of income, but the risk to principal is too high. His advisor has repeatedly told him he is gambling with his future. Because of his age he cannot afford to risk his principal, but my friend does not listen.
Note that I said critical advice—most clients don’t take every piece of advice given, but the guidance you deem critical needs to be followed.
2. To protect the client
If you have decided that the client is not a fit, hopefully her next advisor will be a better fit and the client will be better off for it. Call it Karma, call it good will, whatever, but it’s the right thing to do.
3. You don’t like the client at all
If you genuinely do not like the client at any level, you should fire them. This sounds harsh, but if at every level you do not like this person, odds are near 100% they don’t like you either.
Think you’ll get a referral from them? Unlikely. If they don’t like you either, odds are very good a lot of your great advice is falling on deaf ears and we are back to reasons #2 and #1.
4. To protect yourself and your firm
If you have come to the conclusion that a client has to go, do it now before a correction comes, or the client blames you for an idea of theirs. It has happened before, and it will happen again. It has even happened to discount brokers, where the client called in a trade to a call center, then later successfully sued for not being stopped after the trade went bad!
So how should you do this?
First, be very frank and polite and simply state that they are not following your advice and a different advisor with different chemistry will work better for them. Offer to refer them to other advisors if you know of one. Be genuine in your concern for them and their future.
Firing a client is a very hard thing to do. However, if the circumstances demand it, you are truly doing your former client a service.