How Do You Decide to “Graduate” a Client?

I liked Bob and Sue when we had joint appointments with them: both spouses were present. When we did, the conversation was lively and productive, and we made excellent progress. However, when Bob would come in alone, we would spend an hour with a hot-headed client who kept pushing us to guarantee performance.

You know the type: “If I am paying you $10,000 a year financially, I expect a five-times return on my investments to cover that cost.” These are the types of clients who are so focused on investment performance that they push you in the meeting to hint at or even make some type of promise about rates of return.

We call them performance chasers, and for us, that’s a red flag. This is the type of client who, when you double their contributions, thinks you should have tripled them. The client, who, when the market is up, is happy to chat with you but is still curious why he is getting a 15 percent rate of return and his buddy a 17 percent rate of return. The one that calls you when the market dips and asks what you’re planning to do about protecting their nest egg. These are not normal client concerns but queries that are hyper-focused on short-term performance versus long-term planning.

These aren’t the type of clients that we work with. We don’t like working with them. For us, it’s counterproductive to the value that we are trying to provide by developing lifetime relationships. So, when a client raises a red flag, we pause and then bullpen around the question.

Especially during Surge, a practice in which advisors cluster client meetings into a limited period of time, we get together in our firm as financial advisors and run questions past one another: “Hey, a client said X, and it isn’t sitting right. Do you have any thoughts?”

Sometimes, the client is just asking us to do our jobs: market research and providing our best advice. Other times, the warning bells are loud and clear.

This is when we help one another, as a team, decide if it is best to get rid of the client. You see, when one person is in jeopardy, we all are. That’s how a team works. We cover one another, provide support, and then strategize the best way to de-escalate the situation.

In our case, we fired Bob and Sue and refunded their last payment to our firm. It is not a requirement but helps us feel better about the relationship ending. Sue was shocked, Bob was furious, and the conversation was unpleasant. It isn’t fun firing anyone who hasn’t done something egregious.

We also fire clients who are rude to our team – without question. My father, Floyd, started that back in the 1980s. Most of his administrative staff back then, though not all, were women. When clients would call and yell or curse because they didn’t get the appointment on the day they wanted or they couldn't speak to him because he was in a client meeting – whatever the reason – he called them and let them know they are welcome to hire any other financial advisory firm who accepted such behavior from clients. Floyd fired clients for mistreating his team and developed a loyalty that led to some of the lowest turnover rates ever.

My brother, Micah Shilanski, CFP®, and I carry on this tradition. We let clients know during onboarding that we are civilized and well-mannered people serving civilized and well-mannered people, and we expect a certain level of conduct.

Our staff will lose their jobs if they’re rude, and you will lose your financial advisory firm. Don’t worry – we don’t employ staff with unusually fragile sensibilities, so it isn’t like everyone is walking around easily offended. It takes a really unpleasant person for my team to bring up their behavior. They’re exceptional at what they do, and they understand how stressful personal finance is.

I bet if you think about it, you have red flags, too – don’t you? But do you have them written down, and have you discussed them with your entire team?

Firing clients, while never pleasant, is far easier than graduating them. When you graduate a client, you often must have a guided discovery that you have come to the conclusion of your relationship – which they may not be aware of yet.

When to graduate clients as a financial advisor

When you graduate a financial planning client, you’re ending the relationship simply because it has run its course. You probably already know who these households are, but if not, I will offer a three-step filter to identify them. But first, you have to do something super uncomfortable, in my opinion. Are you ready?

What is your break even on clients? What does it cost to acquire, care for, and maintain one household at your firm? Not sure? That’s ok – most financial advisors that I chat with aren’t either.

Here is what you do: Open up last year's profit and loss statement for your business – the one you’re not going to justify or monkey around with because it’s over and recorded.

Take your total expenses and divide it by the number of clients that you had on 12/31 of last year.

That is what it took to maintain your operations per household. A pretty simple process, isn’t it? Don’t overcomplicate it by throwing in acronyms like EBOC, EBITDA, or anything else. Just get a process in place.

Now, you have your break-even cost per household. Here is the real kicker, though… Does that number fit with what you wrote down as your income goal for this year?

If you are like most of the financial advisors that I chat with, probably not. Last year at our Retirement Tax Services Summit (if you haven’t registered for this year’s event, what are you even doing with your life?), most of the advisors weren’t spending enough time working on their business to determine these numbers.

Now, figure out what you need to charge per household. What are your revenue goals? The real ones, not the ones you want to justify because this is becoming really real, really quick.

Brace yourself, this is about to get super uncomfortable – and I do mean really uncomfortable – but I promised to give you a filter, not a band-aid.

Open up a spreadsheet. Go ahead – you probably have a tab already open somewhere with a crisp, fresh spreadsheet ready.

Here is what I want you to do:

1. Column A mark as “Household”;
2. Columb B mark “Personable”;
3. Column C mark “Productive”; and
4. Column D mark “Profitable.”

Step 1. Import a list of your clients into column A.

Step 2. Make a drop-down list of “Yes or No” to choose from in Columns B and C. Use these definitions:

Personable: You like them, and your staff likes them. If you see their name on the calendar and dread their appointment, they are not personable.

Productive: They listen to your advice. Not sometimes, but most of the time. They have to listen to your financial advice.

Step 3 (eek!). Populate Column D with the gross revenue earned by this household in a year. Whatever the client paid you, however, they paid you (fee or AUM), goes here.

Step 4. Hide Column A. Sort Column D from most profitable to least. You set up the profit benchmark; the beautiful, ugly truth about math is it doesn’t lie. It is what it is. If you said every client has to pay you $3,500 a year for you to achieve your goals, and a client is paying you $3,000, guess what? They didn’t meet the criteria. Now, that doesn’t mean you fire them – more on that in a minute.

Step 5. Flag anyone who isn’t Personable, Profitable, and Productive. These are your clients who aren’t meeting the definitions of what it takes to be a client with your firm – individuals who you, most likely, need to graduate.

Step 6. “Everyone gets five exceptions.” In our office, each financial advisor is permitted to have five exceptions to this rule. Five exceptions, not five hundred. That’s the important part – because if there isn’t a boundary, us financial advisors will let everyone cross it. If we want to have six exceptions, then guess what? That’s ok! The financial advisor pays the firm for the sixth person – using the above example, the financial advisor would pay the firm $500 (to make up for the difference in revenue) for the sixth exception.

We love the rule of five exceptions because sometimes there are really personable, productive people who we want to help, but we know that they can’t afford our services. This rule gives us space and capacity to do so.

What happens when you graduate a client

When it is time to graduate a client, we don’t relish it. We don’t look forward to the closure of that relationship, but we also know that not all things that end have to end badly.

In the last three months, I graduated two clients from our firm. Neither experience was “fun,” but they were meaningful. They ended with both clients thanking me and my team profusely for all that we did to change their lives.

One cried as they said goodbye because, man, we had really been through the thick of it together. I liked them a lot, and they were paying our fees. However, we had entered into a territory where it was no longer productive. They weren’t taking advice or listening as ardently as they had when we first started working together 12 years prior.

Just because someone is willing to pay for financial advice, doesn’t mean that they have to take it. After I ended a meeting with this particular client, I was frustrated. They weren’t seeing the writing on the proverbial wall, no matter how clear I was in my communication.

“Well, you are still the captain of the sinking ship,” my friend and colleague Matthew Jarvis told me when I tried to give some justifying answer about it being the client's choice not to listen and, therefore, to deal with the consequence.

When I called the client, I let them know that we had reached the point in our relationship where I didn’t feel that I was adding value. They argued that I was indeed adding value. Although my ego could have let me keep them on, my heart couldn’t. I knew that we were going to fall into the same routine, the same patterns, and it wasn’t right. I held my ground, and we parted as friends.

There are times when we graduate clients we can make an introduction to another financial advisor outside of our firm. We know we aren’t the right fit for everyone, but we also believe almost everyone needs to find that right fit.

Financial advisors have the power to radically change lives for generations to come, so if you aren’t the right advisor for the client, free them to find another.

Jamie Shilanski is a Registered Financial Consultant® for Shilanski & Associates, Inc. As an RFC® she helps clients understand the various options and nuances of financial services so they can make informed decisions. In this discipline, she customizes a financial plan that fits their unique set of circumstances.

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