What you do with ’unprofitable’ clients is “a complex mix of relationship and cost”, says Phil Billingham, director at Phil Billingham Partnership, “but if they do not value you enough to actually pay you, then really it’s best to walk away.”
But Fiona Tait, business development manager at Scottish Life, argues that an adviser will never have to ‘sack’ a client if they offer a minimum standard package to all clients that covers costs and a minimum profit.
“Those clients who cannot or will not pay for that package, either by fees or product facilitated adviser charging, cannot be profitable for the adviser’s business. The adviser should explain to them that he can only carry out work on their behalf if it is paid for.”
Alan Dick, partner at Forty Two Wealth Management, believes there will be a lots of clients who don’t fit the ideal profile of a clearly segmented business model.
“However, there may still be some clients who are not be ideal, but the firm has such a strong personal relationship with, that they will be retained even if they are largely unprofitable.”
Perhaps you need to look at the service you are offering again, recommends Mr Billingham. “Do they really need a quarterly valuation and review? Are you sure?
“Often advisers are guilty of adding cost and complexity into relationships where there is no added value. I can remember one adviser who used 22 funds for a simple £7,000 ISA. What value did that add? But it added lots of cost and made the relationship even more unprofitable.”
To cater for less profitable clients, he suggest a cheaper, less intense ‘distance’ relationship might suit some clients rather better. “This means they could remain clients, which is what you both want, I suspect.”
The danger, says Mr Dick, is when a firm tries to convince itself that all unprofitable clients are worth keeping as you have a strong relationship.
“Trying to deliver a service to unprofitable clients isn’t fair on the clients or the business and can only lead to poor service so the clients will not benefit anyway. The only fair thing to do is be honest with clients and explain that the cost of delivering a service is uneconomical.”
