Ask an advisor: Can I refuse to work with my client's son?

September 27, 2023 5:17 PM

Financial advisors differ over whether it's ever OK to refuse a client referral.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

For financial advisors, client referrals are a tricky business. In one sense, the more clients, the better. Even if a new customer doesn't have much money, by working with them the firm reaches more people, its reputation grows and the advisor earns the goodwill of both the new client and the person who referred them.

On the other hand, resources are limited, especially at a smaller firm. A new client — whether it's a relative, friend or colleague of a current customer — may not bring in enough assets under management to justify the time and money they require.

Not that money is the only reason to advise someone. Many wealth managers say the most fulfilling work they've ever done has been pro bono. In fact, a recent study by the Foundation for Financial Planning found that 99% of wealth managers who do volunteer work are motivated by the "satisfaction I get from helping people in need."

But is advising the child of a client the same as volunteer work? Is it an advisor's responsibility to save their time and energy for current clients? Or are there good reasons — including for the firm's long-term bottom line — to welcome the new business, whatever its value?

John Bovard, a CFP and the owner of Incline Wealth Advisors in Cincinnati, is grappling with this question. Here's what he wrote:

Dear fellow advisors,

How do you handle a referral from a client that may not be the best fit for your practice?

I run a small firm, composed of just me and a client service associate. We can only serve a certain number of investors, and we're close to that number now. We feel that taking on smaller clients at this time would take time away from other investors, as well as restrict our ability to bring on larger clients in the future.

Now a retired client of ours wants us to advise his young son, who only has about $25,000 to $50,000 to invest.

I don't want to take on a smaller client, but I also don't want to upset his father. How do I navigate this?

Sincerely,

John Bovard, CFP

And here's what financial advisors wrote back:

Take the client

Andrew Herzog, certified financial planner and associate wealth advisor at

The Watchman Group

in Plano, Texas

The simple answer is: You do it. Clearly the retired father feels he has been treated well and wants to share that quality service with his child. Think of it as the cost of doing business; excellent service will bring additional work to you that you may not want. But in order to keep the father, you help the child.

Perhaps include the child's funds in his father's household billing schedule, and because the child has very few assets he shouldn't need regular financial planning advice beyond a semi-annual or annual meeting. Realize that very few advisors are willing to take on the beginners (e.g., the child) but if you do, you set yourself apart from the rest.

Let them down gently

Lisa Kirchenbauer, CFP and founder of

Omega Wealth Management

in Arlington, Virginia

It's tough. The short answer is to respond with grace and appreciation. Out of courtesy, I would take the call, appreciate them reaching out and acknowledge their desire to get help. Then I explain our fee minimums or the kind of clients we work with and offer to find someone who is a better fit.

There are resources like XYPN or Facet that may be able to help. Thank them and wish them luck and move on. Then explain to your referring client who you are working with these days and what you did to help out the son. Good luck!

Take a meeting

Mark Chisenhall, chartered financial analyst and founder of

Taurus Financial Planning

in Bentonville, Arkansas

When a client refers their adult children to us, we always offer to meet with the adult child to determine if their situation warrants hiring an advisor. Most of the time, the adult child's situation is simple and they are perfectly capable of managing their own investments and personal finances. They just needed a little help getting started.

Take the long view

Brittany Brinckerhoff, CFP at

Hilltop Wealth Advisors

in Chapel Hill, North Carolina

That can be tricky to navigate! You're smart to be thoughtful about the value of each new client you bring on, but you should also make sure to think about the long-term opportunities of working with the current client's children. At some point, that son will likely inherit assets from his father, and you'd be in a much more advantageous position if you already have an established relationship with the son!

Perhaps you can find a simplified service model to work with children of clients, allowing you to build that family relationship without sacrificing too much of your time.

Think of it as pro bono work

Nicholas Bunio, CFP at

Retirement Wealth Advisors

in Downingtown, Pennsylvania

Hey there! For one, I think you have two problems, and it comes down to not having a clear referral system and plan. Your clients should know what types of clients you serve (let's say doctors, nurses and/or yoga instructors), and/or an age category, such as those five years from retirement.

That way, you repel people you don't want to work with automatically, without getting into awkward situations like this.

However, this case is a bit more unique since it's a current client's son. I'd say this:

I think it's wrong not to bring on the son, even if he's very small. I don't know much about your practice or if this son could be a real problem child, but... if you want the big AUM, what will you do if the client dies? That son might inherit this money but have no idea who you are, or feel like you snubbed him years ago. So I'd say, if he doesn't have much money, do some pro bono work. It will solidify the current client relationship too!

But ... if the son truly is a problem child and you don't care if the current client leaves or the AUM goes away, then be honest with the client. Tell him the truth that, based on your practice and who you serve, at this time, the son isn't a good fit and would be better served at another company.

But tread carefully in this case.