September 13, 2011 / 3:36 PM / 8 years ago

Your Practice-When and how to fire clients

* “Firing” clients can help build your business

* Low profits, poor fit are among reasons to change

By Richard J. Koreto

Sept 13 (Reuters) - Sometimes the best way to grow your business is to get rid of business.

Advisers don’t often think about “firing” clients — especially in a tough economy — but saying “so long” to certain clients can be the right way to run a business.

“A client who is not a good fit or isn’t making a good contribution, pulls resources and time away from those you really want to work with,” says Kirk Hulett, senior vice president for strategy and practice management at Securities America, a Minneapolis-based independent broker-dealer.

It’s important, however, to sort out the reasons you want to get rid of a client and have a plan in place before you say good-bye.


As a practice grows in size and reputation, most advisers know the type of client they most like to serve. For many, that means wealthier clients.

A millionaire client might be more demanding, but usually requires less work than 10 clients who each have $100,000.

Financial Advantage, a planning firm in Columbia, Maryland, has dismissed several of its customers because their assets had shrunk below a profitable level, typically $400,000, says Lyn Dippel, lead adviser at the 290-client practice, with $273 million under management.

Some advisers begin to focus on a client niche such as business owners, family physicians, executives, or people approaching retirement age. Any other type of client can become a distraction for the practice and impact performance. An adviser isn’t likely to give such a client his best effort if he wants to spend most of his time on niche clients.

Obvious differences in investing strategy are another big reason to fire a client. Dippel, for example, serves mostly retirees and people close to retirement age who want stable returns that don’t drain their savings. But she says she had to fire one client who was obsessed with returns and called virtually every day with trading “suggestions.”

Then there are clients who just aren’t a good fit.

“Maybe it’s just bad karma, but there are just those clients for whom it just isn’t destined to be,” says Robert DiQuollo, CEO of Brinton Eaton, a registered investment adviser in Madison, New Jersey, with $631.2 million under management.

Sometimes clients simply aren’t happy with the markets and put the blame on the firm, he said. Others might be overly emotional or even irrational when the market is sinking, making interactions stressful.

Either way, it makes for an unproductive relationship.


Before you say good-bye, it’s important to assess whether you can afford to lose the money you make from a client. Even difficult clients and those outside your niche do bring in dollars. That could be worth some inconvenience, said Daniel Gannon of Union Street Financial, a part of the Commonwealth Financial Network.

“This business is a numbers game. You need assets, or you won’t make it,” he says.

Still, losing borderline clients frees up time to win over new customers or build relationships with more desirable current clients.

As tempting as it may be to just cut a client loose, it’s a good idea to spend time lining up a referral first. Having a substitute also helps avoid bad feelings from the abandoned client and can bring thanks and reciprocal business from the colleague to whom you refer.

Also, have a frank, in-person conversation explaining your actions. You might say the firm has changed direction. Don’t get personal. Don’t bring up how much you dislike working with the person — even if that is what’s motivating you.

Don’t immediately cut a check for the client’s assets under management. Even if you stop providing advice, the client’s investments can often be transferred to another adviser as-is. Closing out the accounts could generate a tax problem for the client — and a compliance problem. If you close out a client’s position without warning and the investment subsequently rises, the client could sue for lost earnings.

Finally, put everything, including the end date of the relationship, in writing. Use this document as a summary of what was discussed with the client and send it to the client. Follow your compliance officer’s guidance in transferring all this information to the new adviser as well.


If you feel bad about tossing away clients, you can try to manage the clients — or your firm — to accommodate the would-be castoffs. Sometimes this can often lead to new opportunities and sources of revenue.

For starters, you can “demote” clients. Noel Swain of ProVest Wealth Advisors in Spartanburg, South Carolina, inherited 350 clients from a retired adviser.

ProVest is part of Transamerica Financial Advisors. Because of the way the outgoing adviser’s compensation was arranged, many weren’t profitable. So Swain created a new category of clients for this group, which he called “reactive.” He doesn’t regularly contact them, analyze their portfolios or report their progress. But each client can call on him for an hourly fee of $160.

The result: every client is now profitable. Moreover, Swain says many of the reactive clients chose to upgrade to actively-managed accounts, which bring in more revenue on the whole than the reactive client group.

“We have found that this way of doing business works for us,” Swain says.

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