He didn’t want to, but Stuart Armstrong fired a client. He was a client Armstrong had for 15 years — one who repeatedly failed to respond to emails or phone messages and who didn’t complete paperwork for an agreed-on financial plan.
In the financial advisor version of a breakup, Armstrong told the client, “‘I may not be the financial advisor to take you through the next phase of your life.” Armstrong is an advisor based in Needham Heights, Massachusetts.
Of course, as small business owners, advisors need to make money. And, like all businesses, that means periodically easing out unprofitable clients. But financial advisors are also supposed to be in the relationship business, and many are coached by practice growth consultants to work with clients of moderate means in the hopes that those clients’ assets will rise.
Some advisors are trying to downshift marginally profitable clients to in-house automated services. Here’s how to detect clues that your advisor might consider your account less valuable, and how to navigate that conversation.
For some advisors, the rationale is that timeworn breakup line, “It’s not you, it’s me.” Advisors who base their fees on assets under management (as opposed to commissions or an hourly fee) are most likely to perceive that some clients can’t support that business model because they don’t have enough assets to manage, says Dave Dickinson, founder of Fire My Advisor, a consulting firm in Indian Pass, Florida, that helps advisors comply with regulations and securities laws.
And the problem might be with the advisor’s definition of success. Some advisors — especially those who left the corporate world to become advisors — are accustomed to an “up or out” mentality commonplace at large workplaces, Dickinson says.
Clients understand that advisors need to support a thriving practice, says Charles Rotblut, editor of the AAII Journal, which serves the Chicago-based American Association of Individual Investors.
“The expectation is that you’re in this professional relationship and that you agree to take me on as a client, and that you’re OK with the level of assets I’m giving you,” Rotblut says. And, he adds, young advisors often must take on clients that are less flush, in hopes that the assets will grow along with the practice.
But some clients’ careers are not likely to result in rich assets to manage. “When an advisor reaches the point where they can’t serve everybody, they have to make choices. It’s a clash of business priorities over the needs of the investor,” Rotblut says. “I don’t think advisors want to create bad blood, but they have business realities.”
How do you see it coming? First, be honest with yourself, Rotblut says. How much are you paying the advisor, through fees, commissions or as a percentage of assets under management? Would you keep you on?
Dickinson says a portfolio of $250,000 is usually the minimum that justifies a relationship with an advisor that charges by assets under management.
“If you’re not very affluent, and you’re dealing with an advisor who is charging a percentage of assets, you’re at risk of being fired,” Rotblut says. “Bring the topic up. ‘I realize I’m one of your smaller clients, and my career path isn’t likely to change that. What happens if my wealth stays at the bottom of your client list?'”
Dickinson suggests asking, “Have I been moved to a lower tier of clients? I don’t seem to be getting as much attention as I have in the past.” That addresses the business realities of the relationship without being confrontational, he says. (Dickinson also points out that if you decide to change advisors or move to an automated service, the new advisor or service can handle all the paperwork to transfer the accounts from the old advisor, avoiding awkward conversations.)
You have options, advisors and experts say. Don’t assume that your only option is an automated account ( robo-advisor), Rotblut says. After all, he adds, if the advisor tries to shift you into an automated account, you may as well manage those accounts on your own. Figure out what advice you most need and see if your current advisor will work on an hourly fee basis — or find an advisor who will. “Don’t feel bad about needing time and attention. Find an advisor who will give you what you need,” Rotblut says.
And, if you’re a collaborative client with reasonable requests, you might have a good enough relationship to continue.
“‘I’m willing to keep on lower-revenue clients if the relationship is a good, functioning one,” Armstrong says. He outlines his business model for clients to make sure they understand how they are paying for his services. Occasionally, a borderline client “wants advice but isn’t willing to pay for it,” he says, but more often, clients appreciate the frank review of the business model so they can adjust their expectations accordingly.
Armstrong keeps the lines of communication open by asking clients periodically how they would like to see the relationship evolve. “I lay it out and then revisit the question,” he says. And if expectations are starting to diverge, he tells client, “Things don’t feel the way when we started working together. My first intention is to make sure you are served well. Let’s talk through some of the things that aren’t working as well for you, and let’s discover if there are things we can do to fix it.”
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Why Your Financial Advisor Wants to Fire You originally appeared on usnews.com
