Most of the respondents to this week’s NAPA Net reader poll have fired clients — though not for the same reason(s), and not in the same way(s).
Respondents this week were a seasoned bunch — just under 80% had 15 years or more of workplace retirement plan experience under their belts. With that much experience, it was perhaps not surprising that just under 95% had fired clients (nearly three-quarters had fired more than one) — and that the remaining 5% fell into the “no, but I should have” category.
Breaking down the data, roughly 48% said they had fired between 2 and 5 clients, while another one-in-five (21%) had terminated 6-10 relationships, and 5% more than 10.
Firing “Lines”
As for the reasons behind that action, half attributed it to issues with fees/profitability, one in five said their client refused to follow their advice, and a similar number said it was because those clients “refused to comply with the law.” The remaining 10% said those clients refused to comply with the plan document.
Of course, those selections don’t do justice to the actual experiences. As one explained, “they refused to follow my advice, they refused to comply with the plan document and they refused to comply with the law. Because of that, the plans were high risk, and overall, the relationships not profitable.”
A refusal to provide timely information was noted by several respondents — as was significant delays in paying their bills. As one reader noted, “They wouldn't respond to requests, and when matters came to a head, they blew up and yelled and cursed at me,”
“I couldn't get them to respond to my emails or phone calls,” noted another. “I had signed on as a nondiscretionary RIA, and due to their inaccessibility to me, I was unable to get them to approve various changes that I recommended. Ultimately, I decided there was too much liability (and frustration — life's too short!) for me to continue trying to get them to cooperate.”
And of course, with multiple client terminations, there were multiple reasons; “Fired for refusing to follow advice and refusing to provide requested information,” observed one reader, who also had “one fired for refusing to comply with the law. The owner later appeared in the newspaper with a multiple count Medicare fraud indictment.” Additionally that reader fired another “...because they completely stopped responding to our information requests,” and another “…because of the abusive behavior of their CFO towards our firm.”
Another reader who terminated a client who refused to follow their advice noted that the client was also becoming unprofitable. “They were smaller plans that were outside TPA, who was doing a poor job too. We ended up having to do a lot of the TPA's job e.g. notices,” they said.
Still another reader said they had terminated clients for “All of the above — the client was smallish and the fees were low because the client had a credit line with the bank I worked for so our department was the loss leader. This was a long term client and the father owned the business; he retired: and left it to his son who ran the business into the ground (substance abuse problems, several arrests). It started with amendments to the plan increasing the number loans and in-service withdrawal provisions primarily so the son/owner could get at his money in the plan. After he tapped all of his funds the payroll submissions were submitted late then became nonexistent (son directed payroll to not send files) the last few months prior to resigning. Loans fell into delinquency. The fees typically paid the employer became late and pursuant to the trust agreement were assessed against the trust. I decided to start copying the father (because he would periodically call to express frustration when the trust was hit because of an unpaid fee) but never addressed the issues. During this time (well over a year) a departmental civil war of sorts was taking place: the trust department wanted to fire the client but lending (who in our world "owned" the client wanted to retain them. Once the revolving credit line started experience some issues I was granted permission to resign but by then lot of damage was done.”
One reader cited a firing “...because the management team created an adversarial atmosphere, most often in open participant meetings; always assuming everything was the advisors' fault, including a puny match and operational failures.”
The Problems Emerge...
In most cases, the problem emerged about a year into the relationship with the client — or did for 61% of this week’s respondents. On the other hand, for about 8% the problem emerged after the first committee meeting — and for 31%, it was evident “almost immediately.”
For one reader’s situation, the awareness came “...a couple months in. They would make promises in meetings, and would never follow through.”
“Our firm was quite patient and did our best to make both relationships work. In both instances, when we realized we were just spinning our wheels, we finally severed the relationships. We gave one of those clients about 5 years. The other, we gave 2,” explained another.
The issues weren’t always with the client, however. As one reader noted, “It had to do with our growth as a company and the client revenue no longer fitting into our service model”. Another explained, “Most of the client firing occurred after our operations have grown and our service model changed based on AUM.”
“Breaking” Bads?
When it came to breaking the news half of this week’s respondents said they told those clients the real reason for the termination, while 17% did not — and the remaining third said that while they told the client the real reason, they “may have dressed it up a bit.”
However, one reader explained “No, not worth the time after the last blow up.”
Concluding the story recounted earlier, a reader noted that “By the item I resigned the son was in jail again (assault and possession) so I had to take a trip to visit the father and provide him a 30-day notice in person. The lender did not have to resign; the father became so incensed with the trust department he fired them before I made it back to the office.”
One reader noted “We said we were reviewing our client load, and I can't recall the euphemism we used to explain the reason we felt they might be better served elsewhere...but in both situations these clients were behaving as if their retirement plans were an annoyance, and at every turn they were putting themselves, and potentially our firm, at risk.”
Problem “Spots”
Readers also had some tips on how to spot a problem client:
“Create a report showing your yearly income from each client and create your service model around that. If client with a very low (or negative) yearly income gives you or your staff trouble, you have all the reason to let them go immediately.”
“A bad client is easy to identify. A few frustrating annual cycles is all you need to determine that things are not going to improve. We have always been a hands-on firm, and these particular clients both required a lot of extra visits and conversations that ultimately led nowhere. We were concerned with both clients that their lack of response would lead to inaccurate 5500 filings, and decided that the risk was not worth it.”
“If during your selection process, you feel in your gut that they might be a pain, walk away and save yourself some headaches.”
“Truthfully...try to really determine up front if there is a potential misfit, then decline the client engagement. If the problem evolves over time, call out each incident and deal with it, and document it.”
“Look for key patterns of behavior, that, if continued, would make the relationship difficult, and whether it may put you at risk.”
“Dot your i's and cross your t's. Also, advise them to ask the vendor for help finding a TPA replacement.”
“Ask questions on why they are considering changing advisers and the circumstances. Try to avoid signing on trouble clients to begin with, even if you are in need of another client for the week/month/quarter.”
“I should fire more of my smaller clients, but have avoided doing so. Instead, I manage the relationships by providing less frequent 'touches' for those clients.”
“The best defense is a good offense....set expectations early, look/listen to client reactions, monitor behavior, and again, do not be afraid to call them out, in a professional way. The only thing I truly have is a great reputation for honesty and fairness (and 30 years experience!); no client is worth losing that!”
Some closing comments...
“Some clients aren't worth the trouble, and in my case, trust and respect became an issue early on. (actually 29 days after the official implementation!),” noted one.
“They know that they are a demanding pain in the ass, and they also know that their company is a dysfunctional outfit with poor leadership,” said another respondent.
But this week’s Editor’s Choice goes to the reader who said “I would have to change the names to protect the guilty...........”
Thanks to everyone who participated in this week’s NAPA Net Reader Poll!
Got a question you’d like to pose to our readers? Post it in the comments below, or email me at [email protected].
