July 5, 2023 • By Gregg Greenberg
Jeremy Gottlieb is quoted in this InvestmentNews article
Acquiring clients can be costly but having the ‘confidence and conviction’ to let a bad fit go is vital.
Breaking up is hard to do. And it’s even harder for financial advisors who feel the need to cut ties with an active client.
As any advisor will quickly admit, it’s not easy landing a new client. Most investors of means are already spoken for and the mere idea of signing all those papers to move an account will often spook a potential client back to his or her current advisor — even an underperforming one. Inertia, alas, may ultimately be the most powerful force in the wealth management industry, ranking up there with compound interest.
Bringing on new clients is also not inexpensive. According to a 2020 Kitces Research survey of more than 800 financial advisors, the average total cost for a financial advisor to acquire a new client is a hefty $3,119.
That said, the report’s author, Michael Kitces, notes that a significant portion of that amount is the “time cost” to the financial advisor themselves, an average of $2,600 worth of time spent, or 83% of the total cost of client acquisition, while only $519 is typically spent on hard-dollar marketing costs.
In other words, talk is not cheap when it comes to customer acquisition, so the decision to cut bait on a client is not one to be made lightly.
“Often, the reason for firing a client comes down to our ability to serve them well. Considerations for determining next steps include if our values align, if they fit our business model, are our personalities a good fit for each other,” said Laurie Humphrey of Granite Financial, which is part of Osaic. “If not, then the question arises: are they better suited for a different type of practice instead of with ours?”
Andrew Crowell, vice chairman of wealth management at D.A. Davidson, says that while finding clients is challenging enough, firing them can be equally tough. But he says that no matter how hard an advisor may try, there are some clients who simply will not execute the recommended plan.
“I once inherited a relationship from an advisor who had retired,” Crowell recounted. “From the very first icy phone conversation, I realized this client was not going to let me implement recommendations. She constantly challenged my ideas, redirected the conversation toward other topics and made it clear that she ‘had other advisors.’ After several calls, I let her know that I didn’t think we were a good fit for each other.”
Crowell added: “Building a trusting relationship is critical to investment success, and I could just tell that we were not going to be able to develop that together. Having the confidence and conviction to take the initiative and let her go was liberating and made me redouble my efforts for my clients that do value the investment advice that I can provide.”
Curtis Ray, CEO of MPI Unlimited, says it’s rare for him to terminate a relationship with a client, but when he does, it’s often because they want something done that is not possible or against the law.
“A client once asked me to save money that had not been reported on their taxes, which is ultimately hiding money from the IRS,” he said. “I was unwilling to do that, which led to a frustrated client who I could no longer work with.”
Brandon Dixon-James, president and wealth manager at Resilient Wealth Management, which is part of Osaic, bases his formula for firing clients on whether they are overly and unnecessarily demanding and whether their values are in alignment.
“The first client I ever fired was more concerned with the layout of the spreadsheet than the data input. And she expected to meet monthly to go over her self-created spreadsheet, and we always spent the first hour of two going over the layout and the second hour debating the political climate. This went on for a year before I finally realized that this mentally draining and consuming too much time and energy to even be considered a good client although she had sizable assets,” Dixon-James said. “I felt a sense of freedom after this client was moved to an ex-client.”
With regard to values not aligning, Dixon-James says he maintains an open mind and acceptance to people’s lifestyles and respects each person’s differences. When it comes to the financial planning process, however, he prefers for the client to stick with the plan.
“I have learned to walk a fine line and provide some guidance when those lines are approached, but will not allow those lines to be crossed and continue in that relationship,” he said.
Each Halloween is a time for Jeremy Gottlieb, financial advisor with Integrated Partners, to potentially give himself a treat by firing a client. As a financial advisor with the majority of his clients as retirees, he typically only loses a client when they pass away. But Gottlieb says he has a very small number of clients who think they are smarter than him when it comes to financial advice, or have heard better suggestions at a cocktail party, that he decides the added stress and aggravation is not worth it for him. So he fires them on his birthday, which so happens to be Halloween.
“I know I give excellent service and a true value to my clients,” Gottlieb said. “But for these few who seem not to be pleased no matter how well I do for them, who are stressful and aggravating to service, it becomes detrimental to the practice to hang onto them. So, after a heartfelt decision, I tell them I hope they appreciated the valuable time and service I provided them over the years but since it has become apparent to me that my work is no longer to their satisfaction, if they choose to stay they will be under a different service model or they are welcome to leave, if they have another financial advisor in mind. I gladly allow for a smooth transition.”