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How my firm nips client breakups in the bud

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Client breakups are a fact of life. There will always be some who just don’t mesh and end up parting ways with a firm. But through a process of trial and error — one that continues to this day — our firm has succeeded in minimizing such partings. Here’s how:

First impressions are key. When a potential new client calls, our office manager Krissy coaxes out their initial story to determine if they fit our typical client profile. She can get even the most reluctant caller to share enough information to determine the next step. Our headline service is comprehensive financial planning, of which investment management is only a part. We charge a quarterly flat fee for our service based on complexity. If someone is looking for only investment management, hourly services or a one-time engagement, Krissy will provide a warm referral to another advisor who will be a better fit.

If the caller seems like a good fit, Krissy sends an email summarizing the conversation, along with a copy of our client engagement standards and a document outlining our investment philosophy and process. Their instruction is to review these documents and, if the information resonates, to call back to make an appointment. This reduces the number of nonfruitful meetings with potential clients.

Face-to-face meetings also set a vital tone. In our introductory meeting, we assess clients' goals, learn about their lives, answer questions and take stock of why they want to hire a financial advisor. We talk very little about their assets or financial questions. They bring in basic financial documents such as tax returns and financial statements. Many prospective clients were referred by current clients while others read about our comprehensive planning process in the press. Most have experienced an event that warrants hiring an advisor. Others realized their “planner” was charging a lot of money and providing just investment management, not real financial planning.

In this first meeting, we review our engagement standards. Based on the discussion and a review of their basic documents, we discuss our scope of services and set our fee. If they did not bring in any basic documents, we give them a ballpark figure of our fees based on the conversation. I learned a long time ago that all clients think they are uncomplicated. The tax return is the window to the financial soul and I never set a fee without seeing the tax return and a list of assets first.

In the early years of our intake process, we provided a synopsis of our passive investment management philosophy on our website and discussed the big picture philosophy of how we managed investments in our initial meeting — a crucial step since our client engagement standards state that clients must agree with our investment philosophy. But what we realized over time was that some clients dearly wanted our help and would therefore agree to everything without totally understanding what they were agreeing to — especially our investment process.

With that in mind we created an investment education piece that spelled out our investment philosophy and the nuts and bolts of how we manage investments. For example, in addition to using only passive funds, we will not provide advice on individual stocks, private placements, or anything else that we do not already utilize in our portfolio. If someone comes to us with these types of investments, our goal is to get them out of these investments as soon as possible in a tax-efficient manner.

This is the educational piece that now goes out to clients before we have an initial meeting. The number of potential clients who showed up with an investment philosophy that differed from our style was significantly reduced.

Despite our best efforts, in the past few years we’ve had a small number of clients slip through. These clients who agreed to everything ... then pushed back on how their investments were being managed.

One client was the family member of a different client. From the beginning, we were concerned he would not be a good fit based on his questions and steered him in another direction. He came back again and promised that his old style would not interfere with our strategy. He showered us with praise over our planning but over time his investment questions continued to escalate and he never seemed satisfied with our answers. Eventually, we kindly told him to find another advisor.

Another long-standing client never pushed back on our investment process but would occasionally ask questions about alternatives, bitcoin and active management. These questions concerned us as it was a flag that he didn’t wholeheartedly drink the passive investment Kool-Aid.

Eventually, he shared he was investing on the side, including a nice sum dedicated to bitcoin, and was talking to friends about private placements. Why, he asked, “don’t you help me shop for the best people doing private investments” the same way we helped him shop for the best insurance using multiple providers? This, of course, was at the height of the bitcoin boom and all of his friends were doing well. He wanted in on the party.

I had to spell out that shopping for insurance was very different from shopping for the best investors. Maybe we did not do a good job from the beginning explaining what we do or he agreed with our process but never shared that he felt someone out there could be smart enough to beat the market. Highly educated people seem to be more prone to this fallacy.

Reviewing the histories of both those clients and a few others, we realized they’d all asked red-flag questions in our initial meetings. For a number of reasons, we chose to ignore the red flags and paid for that mistake.

Now we have a new process. In the initial meeting, we ask more pointed questions about a potential client’s investment philosophy and their thoughts on reading our investment education piece. If it seems they totally embrace how we manage investments, we’ll sign them up. If not, we schedule a second meeting with Tim, our investment manager, before they can become a client.

In that meeting, Tim questions them extensively on their thoughts about investments and goes into depth on the logistics of our investment philosophy and process. If they present any push back or any red flags at all in this meeting, we will not take them as a client.

Taking on new clients is a wonderful adventure that consumes both time and energy. If the relationship doesn’t work out, the only benefit is an education in how to do better the next time.

Let’s hope I can spend my future educational time on more fruitful endeavors!

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