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When Should You Fire a Client?

A defining moment for most entrepreneurs is when they fire their first client. It signals a shift from chasing revenue at any cost to knowing yourself and your value and understanding that a client may not fit your business model.

For DC plan advisors acting as fiduciaries, this dynamic goes beyond business sense.

DC advisory fees are dropping precipitously, for a number of reasons. Today more advisors are interested in the DC market, and slick tools and reports can make novices appear to be experts. But most importantly, many advisors fail to establish their value. If CFOs don’t see how their DC plan increases the company’s viability — focusing instead only on funds, fees and fiduciary liability — why should they be expected to pay more for advisory services?

Experienced advisors that charge more tend to focus on outcomes and financial wellness — issues that only resonate with plans that care about them. And that’s fewer plans that we may think, especially if we ask the CFO.

So when a client’s vision of the value of their advisor doesn’t match the deliverables that the advisor uses to distinguish itself, it might be time to fire that client. Joe DeNoyior at the Washington Financial Group recently fired a client “because they were not leveraging our service model,” he says. “Plus, we were not comfortable how they managed their plan.” Jamie Greenleaf of Cafaro Greenleaf echoes that sentiment: “We fire clients that view their 401(k) plan as a ‘check the box’ benefit, that are not engaged and do not leverage us,” she says.

A warning sign might be when the company refuses to create a committee to govern the plan or, as Steve Dimitriou of Mayflower Advisors reports about a recent situation, “We fired the client because they refused to abide by the regulations.”

In a recent FiduciaryNews article about when advisors acting as fiduciaries must fire a client, Christopher Carosa notes that generally it boils down to situations when the plan sponsor is not acting in the best interest of the plan. This raises a tricky question: Who is the client — the plan, the participants or the company?

So beyond the obvious situations where an advisor is legally or ethically uncomfortable, how do advisors get into situations where a client’s needs don’t match the firm’s capabilities? One possibility is that both the client’s and the advisor’s businesses may have changed over time. But another may be that some advisors are willing to take on any piece of business without giving much thought to whether it’s profitable or leverages their core competency.

Is it time to prune your business and institute a documented process to ensure that prospects are a good fit and will be profitable? Is it time to walk away from some opportunities and fire some clients? The answers to those questions will go a long way to determining whether you are building a practice or a business.

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