by Alan S. Horowitz
Sometimes, things just do not work out and partners need to go their separate ways. This applies to wives and husbands, employees and employers, business partners and, yes, financial advisers and clients.
Firing clients, or taking action to remove them from your client base, is among the most difficult tasks facing an adviser.
"Advisers would rather cut off their arm" than fire a client, says Stephanie Bogan, president and CEO of Quantuvis Consulting. "Financial advising is about relationships, and terminating a relationship feels counterintuitive to building a relationship." Bogan does not recommend "kicking Granny to the curb," but rather suggests firms find ways to ensure client relationships are reciprocal-that the relationship is good for the client and good for the firm.
In the late 1990s, Deena Katz, CFP®, chairman of advisory firm Evensky & Katz and associate professor at Texas Tech University, interviewed 50 advisers for a book, and asked each if they had ever fired a client; none had. When asked why not, says Katz, "They said, 'I don't know what to say to them' and 'I don't want to upset them.' And yet everyone admitted they had clients they needed to fire."
When Possible Provide an Option
Firing a client should never come without warning. Better yet, try to make the decision the client's choice. For example, if the client is unprofitable, Bogan recommends setting a minimum fee and giving the client the option to remain a client by paying the difference between the revenue the client generates and your minimum fee. Then it is up to the client to decide whether to stay.
For demanding, inconsiderate or otherwise problem clients, give them the option to change before letting them go. Some clients do change. Katz was in the process of firing a client when he promised to change his ways. "We kept him and he has been a pussycat for the last 10 years," Katz reports.
By giving clients an option, notes Bogan, you are changing who is making the decision. Keep a record of your conversations and communications, so you can use it to show the client the ways the relationship no longer works.
When difficult clients do not change but still want to remain clients, Julie Littlechild, president of research and training firm Advisor Impact, recommends telling the client, "I appreciate that you want to continue working together but I think we cannot meet your needs."
Do not back down when you know firing the client is the right thing for both of you. Whatever the situation, do not respond in the heat of the moment.
"If they make you angry and you're on the telephone with them, don't say, 'That's it, I'm done with you,'" advises Katz. "Get off the phone, pull yourself together and make an appointment with them."
Avoid the Blame Game
Never get into a blame game when letting a client go.
"Do not make it anyone's fault," says Katz. "You don't want it to evolve into he said/she said. Just say that we're not going to be able to continue this relationship."
When the reason for breaking off the relationship lies more with the adviser than the client-such as changes in the focus of the practice over time-Littlechild recommends saying, "I don't think we can fulfill the promise we made when we started to work together."
Vern C. Hayden, CFP®, president of Hayden Wealth Management, suggests positioning the firing as a benefit to the client, perhaps pointing out that the client and adviser have different philosophical approaches to managing money, and the client would be better off with an adviser whose investment strategies are more in tune with the client's.
And deal with the separation in person.
"Don't do it by phone or by email," says Bill Campbell, president of wealth management firm Slayton Lewis. "Make an effort to sit down with them and have that discussion."
Katz recommends having someone from your team in the room as a witness, and immediately after the meeting write down what was discussed and send the client a letter summarizing what was agreed to. If you agreed to take the client off your books next month, for example, spell that out in the summary.
When firing a client, Campbell uses a defensive strategy modeled after the strategy one should use if encountering a mountain lion.
"When you have a client who is leaving, you want to make sure there is no animosity that could turn to legal action, which is why you don't turn and run," says Campbell. "And don't be afraid of the client. Take as long as is needed to make the transition."
To Refer or Not to Refer
Some advisers do not give fired clients referrals to other advisers, and some do.
Bogan recommends never referring the client to another adviser if the reason for the firing was the client being rude.
Katz provides a list of two or three advisers for the client to consider. "I try to think about the client's personality and temperament and what I thought wasn't working," she says. "And then I think about other advisers in my area who do things differently or have a different personality or temperament that might work better for the client."
Firing is never easy, but it often must be done. Planning for this eventuality makes the process easier and more effective for all concerned.
Alan S. Horowitz is a freelance writer based in San Mateo, Calif. He can be reached at alan@AHorowitz.com.
Sample Letter to a Client
Julie Littlechild, president of Advisor Impact, recommends using some variation of a letter such as the one below when making changes to a client relationship.
I'm writing for two reasons: first to thank you for your support over the years and second to bring you up to date on some changes to our client service plan going forward.
As you can imagine, one of the hidden problems associated with growing a business is continuing to provide our clients with the level of service they deserve. For that reason, we have had to make some very difficult decisions in order to deliver on a promise that we made to you when we started working together. That promise was that you and your portfolio would receive the highest level of attention.
(Name) is an adviser with our firm, and an outstanding talent. With your permission, we would like to transfer your account to (his/her) team, as I am unable to make the commitment you deserve going forward. If this is not suitable, I would be happy to help you find another adviser who meets your needs.
(Name) has worked advising clients for (number) of years. (She/He) holds a (CFP). In addition, (name) devotes (number) of days a year to continuing education to stay abreast of all changes in the industry and the markets.
I will touch base in the next week or so to finalize the details and answer any questions you may have about the process. Thank you again for your support; it has been a pleasure working with you over the years.
Should You Fire a Client?
Deena Katz, CFP®, chairman of advisory firm Evensky & Katz and associate professor at Texas Tech University, uses these criteria to decide whether to fire a client:
1. Is the relationship financially valuable to you?
2. Is the relationship personally valuable to you (you enjoy the relationship)?
3. If you answered "yes" to either of these questions, do not fire the client. If the relationship is not financially or personally valuable, firing the client is likely a good idea.