For last week’s column, I spoke with Paul Lofties, the vice president of wealth management and acquisitions at Securities America about a topic that many advisors often try to avoid: Letting clients go.

But just as the key to rescue a sinking business is to invest in new projects, to grow your practice, it is essential to release some clients to make room for more profitable ones. Last week, we discussed how to figure out which clients are contributing the least to your bottom line. We also talked about two options for letting them go: selling your C and D clients to another, growing advisor who has the time and resources to give them the attention they deserve; or hiring a junior rep who will be able to do just the same.

This week, Lofties will reveal one last option for releasing clients. We will also delve into the myriad questions and concerns many advisors have about letting clients go.

The final option for releasing clients is a bit harsher than the first two. This method can be used not only for clients who are not producing enough revenue but also for those who, while they may be profitable, are causing problems.

Maybe they aren’t following your advice. Maybe they want to jump ship every time the market drops, no matter how many times you try to calm their fears. One way or another, they are becoming problematic—and they’re taking time away from productive, profitable tasks.

The final method is to “fire” these clients or, essentially, encourage them to find another advisor. In these cases, Lofties recommends being upfront with the client, telling him that things are not running smoothly and clearly laying out your expectations for him to change in order to keep this relationship going. This can include behaviors or even attitudes. If the client hasn’t changed in three to six months, it’s time to show him the door, Lofties insists.

So now you know the ways in which you can release your clients, but what about those concerns we mentioned earlier?

After all, many of these clients will have been with you for many years—a few may even have been some of your very first clients. Doesn’t releasing them due to the fact that they’re not contributing enough to your bottom line mean that you, in essence, failed them?

Lofties, like many other coaches I’ve spoken with regarding this topic, insisted this isn’t true.

“The typical experience is they will say, ‘I appreciate that you’re having growth in your practice and I’m glad to be handed off.’ because now they’re going to someone who is going to view them as an A and B client,” he said.

What about the concern that an angry client, released from your services, could spread the word of your disloyalty, taking clients—and a big chunk of your assets under management—with him?

This simply doesn’t happen, Lofties said. He insisted he has never seen this happen in all the transitions he has been a part of at Securities America. He said that he does recommend, however, advisors keep clients who they feel could be a risk to their practice should they let them go.

It is clear that in these tough times, you need to focus on what actions you can take today that will keep you in business five, 10, or 20 years down the road. One key is eliminating the dead weight at the bottom of your client list and freeing up your time to find more high flyers.

But this process isn’t only for advisors who were members of the first CFP graduating class. In fact, Lofties said that he recommends segmenting your clients out as early as three years into your career. While you don’t have to release clients each time you segment, he says, it’s always wise to know exactly where you stand.

“You need to really get your handle around where’s your potential is coming from,” Lofties said. “It may be appropriate to do something about it, or it may be better to wait a few more years. But it’s time to start looking.”

To read more "In the Game" columns click here and to read more of our other columns click here.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access