‘This Is Not Go­ing to Work’

Key warn­ing signs that in­di­cate a prospec­tive client might turn out to be a poor fit for your prac­tice.

Financial Planning - - CONTENT - By Ingrid Case

Key warn­ing signs that in­di­cate a prospec­tive client might end up be­ing a poor fit for your prac­tice.

WHEN A CLIENT PROVES TO BE A POOR FIT FOR A plan­ning prac­tice, a smart plan­ner lets that client go. An even smarter plan­ner screens po­ten­tial clients be­fore com­mit­ting.

Many prac­tices rely on web­sites and emails to de­scribe the ser­vices they of­fer and the types of clients they serve.

“If they like what they see, I sched­ule a call with them where I find out more about their cir­cum­stances,” says Craig Larsen, founder and pres­i­dent of AHC Ad­vi­sors in St. Charles, Illi­nois. “If they may be a fit, we then sched­ule an in-per­son meet­ing to help them learn more about us, and we learn more about them. If they still like what they hear, then we sched­ule a second meet­ing to go over our in­vest­ment phi­los­o­phy and ap­proach in de­tail. At that meet­ing, it is pretty clear to ev­ery­one if we are a fit for each other.”

In these con­ver­sa­tions, Larsen and plan­ners like him lis­ten for po­ten­tially deal-break­ing an­swers to ques­tions.

DOES HE NEED WHAT YOU HAVE?

Metaphor­i­cally speak­ing, if a plan­ner is a den­tist but the client needs a sur­geon, the re­la­tion­ship won’t work.

“I don’t re­quire that po­ten­tial clients be fi­nan­cial ex­perts, but when they say, ‘My fi­nances are a com­plete mess,’ a red flag goes up,” says Cathy Cur­tis, owner of Cur­tis Fi­nan­cial Plan­ning in Oak­land, Cal­i­for­nia.

“If they mean that they don’t un­der­stand in­vest­ing or what to do with their 401(k) ac­counts, that’s fine. If they mean that they are on the edge of bank­ruptcy or have tons of credit card debt, those aren’t my ar­eas of ex­per­tise. Their prob­lems just aren’t in my wheel­house.”

IS HE TOO FO­CUSED ON FEES?

Prospects who want to ar­gue about fees be­fore they’re even clients aren’t usu­ally worth a plan­ner’s ef­forts, says Ge­orge Gagliardi, a plan­ner in Lexington, Mas­sachusetts.

Af­ter whin­ing about Gagliardi’s fees, he says, these prospects of­ten sug­gest some­thing like, “’We’ll give you a small piece of our as­sets.’ That’s a small price for a large headache, plus now they can mimic my setup in the rest of their port­fo­lio,” he says. “I’m a pro­fes­sional and would like to be treated as such.”

Clients who try to ne­go­ti­ate Cur­tis’ fee may also try to get more than she of­fered or ex­pect a di­rect dis­count. The worst fee-sen­si­tive clients may end up stiff­ing you for your fee. “That’s a dis­as­ter,” Cur­tis says — and good rea­son to screen care­fully up front.

DOES HE CHASE PER­FOR­MANCE?

“If all they care about is per­for­mance, that’s not go­ing to work,” Gagliardi says. “Try­ing to meet clients’ fi­nan­cial goals with risk-man­aged re­turns is what I do. A guy came up to me at a town func­tion and said, ‘Can you beat the mar­ket in good times and not get hurt dur­ing bad times?’ No, and that’s not my job.”

Peo­ple who can’t re­sist the next hot in­vest­ment or want to guess what the mar­ket will do are also a prob­lem, says Scot Stark, owner of Stark Strate­gic Cap­i­tal Man­age­ment in Free­land, Mary­land. “There are peo­ple who yearn for you to fore­cast the fu­ture, and I have col­leagues who do that, em­pha­siz­ing the out­look for the Fed, the econ­omy and so forth,” he says. But prog­nos­ti­ca­tion isn’t what Stark does.

Like most plan­ners, Gagliardi says he wants to work with clients who can take the long view. “When some­one looks at a week’s per­for­mance and freaks out and won’t lis­ten to a rea­son­able dis­cus­sion, it tells me that this is not go­ing to work,” he says.

Per­for­mance chasers of­ten re­veal them­selves in sto­ries

about their former plan­ners. Ask whether a prospec­tive client has worked with an ad­viser be­fore.

If so, what hap­pened to that re­la­tion­ship? Some peo­ple fire mul­ti­ple ad­vis­ers, Cur­tis says, be­cause of un­rea­son­able ex­pec­ta­tions for port­fo­lio per­for­mance.

WILL HE LET THE PLAN­NER PLAN?

So­cially re­spon­si­ble in­vest­ing pref­er­ences are one thing. Mi­cro­manag­ing is an­other.

“A guy came in and said that his wife knows about this stuff and doesn’t like this fund and that fund,” Gagliardi re­mem­bers. “I can tailor a port­fo­lio, but this was an early warn­ing sign.”

Cur­tis asks prospec­tive clients how they’ve been man­ag­ing their money thus far. “If they say their fa­ther or their brother has been man­ag­ing it, that’s a huge red flag,” she says. “The money will move over and all of a sud­den they will tell me that I can’t sell this stock or that stock, be­cause their fa­ther bought it for them.”

Stark cringes when he meets know-italls. Cor­rect them, and they’re of­fended. “These peo­ple are usu­ally men, be­cause men are usu­ally more ma­cho about their money. You want clients who are del­e­ga­tors and good lis­ten­ers,” Stark says.

DO YOU LIKE THEM?

You don’t need to be friends with your clients, but you do need to like them enough to work with them.

“Some folks are just plain dif­fi­cult,” says Erika Safran, owner of Safran Wealth Ad­vi­sors in New York. “Their ex­pec­ta­tions about their fi­nances are clearly un­re­al­is­tic, and the at­ti­tude with which they present their ex­pec­ta­tions can hint at fu­ture dis­cord in our re­la­tion­ship. You raise your voice at a meet­ing and the meet­ing is over.”

Larsen takes that pol­icy a step fur­ther. “If a prospect treats any of the staff rudely, then we don’t work with them. Pe­riod,” he says.

It’s hard to turn away work, es­pe­cially when your prac­tice is rel­a­tively new. Stand firm, these plan­ners say.

“It’s very dif­fi­cult to turn away clients who could im­prove your bot­tom line, but if the cost to me and my prac­tice is frus­tra­tion, lost time and an un­sat­is­fied client, then it is bet­ter to break off the engagement than to suf­fer a pain­ful mar­riage and a pre­dictable di­vorce,” Gagliardi says.

“If a prospec­tive client says, ‘My fi­nances are a com­plete mess,’ a red flag goes up,” says Cathy Cur­tis of Cur­tis Fi­nan­cial Plan­ning.

“It is bet­ter to break off the engagement than to suf­fer a pain­ful mar­riage and a pre­dictable di­vorce,” says Ge­orge Gagliardi.

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