Advisors are programmed to sell, sell, sell. So, it goes against the grain to refuse to serve a client. But, what about the clients that are more trouble than they are worth? The best option is to fire them or you may regret it down the road, say the experts.
“Every advisor has at least one,” says advisor Jim Bullock, who has fired difficult clients over the course of his career. “The client from hell is a person who is very demanding and can’t be satisfied. And, very often it is a person that is demanding a million dollar service. I haven’t done it as much as I should have. Looking back I wish I got rid of some more,” he says.
Besides the client from hell, the other type is the cowboy, explains Mr. Bullock. This type of client is always doing wild and crazy things and when things go awry, they will blame everyone but themselves.
Cowboy clients are quite common he explains. They are those that make investments on things you wouldn’t approve of, or someone that insists on buying a type of insurance you don’t agree with or the wrong amount. “Advisors have to realize this guy is a disaster waiting to happen,” states Mr. Bullock.
Harold Geller of the Ottawa-based law firm Milton Geller specializes in, among other things, in insurance matters. Like Mr. Bullock, he signals the cowboy client as a future problem.
“When an advisor makes recommendations and the client does not agree with the advice saying, ‘no I want bigger returns, I want to go into this sector,’ then there should be a significant concern,” warns Mr. Geller.
He adds, “If a client is trying to push you into something you don’t think is appropriate then you should show in writing that they are going against your advice.”
But overall, when deciding whether to let a client go, communication breakdown is the key, stresses Mr. Geller.
“If there is a communication breakdown, then there is a sense that the advisor and client are not on the same page,” he explains.
“It doesn’t matter what the root of it is, but if for any reason the advisor has the sense that their communication relationship with the client is not effective and they are not providing the level of service that they wish to, then they are taking on a risk.”
He highlights, “If advisors feel in their gut that the relationship is uncomfortable then they should examine that sense as soon as it occurs.”
Mr. Geller explains that detecting problematic clients early on comes with experience, and he suggests that younger advisors ask around if they feel uneasy about a certain situation.
Another red flag involves clients that neglect the know your client (KYC) form. “If an advisor is finding their client is not updating their KYC form on a regular basis or when large events occur, you have to be concerned about the impact on the KYC breakdown. And a client that is reluctant to communicate is a red flag,” explains Mr. Geller.
David Di Paolo, a lawyer and partner in the Toronto office of Borden Ladner Gervais, says that it can be tough determining whether to fire a client.
“It is counterintuitive to an advisor: their initial instinct is to get as many clients as they can. So the notion of telling a client to get lost is inconsistent with what they have been trained to do,” he says.
“That is why it is so difficult for advisors and that is also why they get themselves into a lot of trouble down the road,” he adds.
A risky sign is if the client’s tolerance for risk seems to exceed what the advisor thinks is appropriate says Mr. Di Paolo.
Also, if the advisor starts to feel like an order-taker, that is also a red flag. “If you get the sense that the client is constantly over your shoulder, if they call several times a day and they are constantly on you, that is indicative of a problem. There is not that level of trust. A good client wants to know how their portfolio is doing, but they trust that if there is something significant going on in their portfolio you’ll let them know.”
Mr. Di Paolo sums up, “If there is a breakdown in the relationship, the advisor should consider firing the client.”
He explains that he has seen a ton of clients (advisors) that have had clients lose money and blame them. He says it is an extraordinary step to fire a client, but it makes sense for some advisors, especially if they are certain the client is the type to blame them when things don’t work out the way they’d like.
Mr. Di Paolo adds that advisors should learn to be a bit more assertive. “Some are afraid to put their foot down with their clients. They don’t want to upset their client so when they push back an advisor’s recommendation, the advisor says, ‘that is fine.’ But there is obviously a problem here and the advisor should say, ‘you are not accepting any of my advice, either you go somewhere else or you accept my recommendations.’”
When asked whether it is wise to screen clients before deciding to do business with them, Mr. Di Paolo says that some advisors do not sign all clients. “Some of the factors you can recognize off the bat,” he remarks.
John Dowson founder and president of LifeTrust Planning, a firm specializing in life planning for parents of people with disabilities, says that pre-screening would be nice but is not realistic.
“It is a nice idea, but most people want a sale. But you can (do pre-screening) once you get to a point of being a high-end agent.”
Mr. Dowson also admits to having let clients go. “I have fired a client, because the fellow kept phoning and phoning and I said, ‘I do not want to handle your business.’” Other reasons include, if the client is in an area too far away to service, he says.
Put it in writing
When firing a client, the agent or insurer will assign them a new advisor. “You need to have your client sign a “Servicing Agent” letter appointing another agent. The agent of record will remain with the writing agent as well as any renewal commissions. In most cases the insurer will assign the orphan policyholders to an MGA for service, who will in turn assign a broker to the case,” says Mr. Dowson. He stresses that most people do not know that all the renewals and conversions are still in place.
“The client has to sign that they want someone else to be the servicing agent, if they don’t want to leave there is not much you can do about that except not reply to their emails or telephone calls and hopefully they’ll get the message,” states Mr. Dowson. He reveals that he once had a client that refused to leave him.
However, Mr. Di Paolo says that when clients are faced with a request to leave, they are more likely than not to find another advisor.
Mr. Bullock has a graceful tactic for letting clients go. “The easy way is when the client is complaining that you didn’t do something you should have done or you did it late, or you made a mistake. You then say to the client that he obviously has very high expectations and is very detail-oriented and you say things that are more flattering than negative. Such as, ‘a client of your calibre deserves a more attentive and responsive advisor, than me.’”
They in turn see this as a compliment, says Mr. Bullock. “It is especially good if at the same time there is someone you know that will take over the file. A newer agent might very welcome the chance to have a new client, because even a nasty client is better than no client at all.”
He stresses that it is important to be tactful so the client does not speak negatively about you to others. “Your clients tend to come from a certain pool, in my case they are doctors. If you tell one off, he may tell others to stay away from you.”
And when you do manage to leave the client, Mr. Bullock warns to still keep his or her file, “at some point you may need to help the client or defend yourself.”