This is the 23rd installment in a Financial Planning series by Chief Correspondent Tobias Salinger on how to build a successful RIA. See the previous stories here, or find them by following Salinger on LinkedIn.
Financial Advisors: When to Fire a Client or Turn Away New Business
Financial advisors often face the decision of whether to turn away a potential client or part ways with an existing one. This critical decision-making process is a significant milestone in their professional journey and the growth of their advisory businesses.
For startup registered investment advisory firms, the challenge lies in balancing the need to acquire new clients to sustain the business while ensuring they do not overextend their customer base beyond their capacity. Finding this equilibrium is crucial for the success of any RIA.
Key Considerations for Advisors
Julie Genjac, a practice management coach at Hartford Funds, advises advisors to evaluate whether a client truly aligns with their firm. If the client does not add value or follow the firm’s advice, it may be time to consider parting ways. Reflecting on the client’s contribution to the firm and the relationship’s overall benefit is essential in making this decision.
Client Retention and Growth Challenges
A survey by Cerulli Associates revealed that serving non-ideal clients poses a significant challenge for advisors, impacting their productivity. Client segmentation and niche targeting are crucial for sustainable growth in the RIA industry.
While some advisors excel at refining their client base, reports indicate that many fall short of their organic growth targets. Achieving sustainable growth remains a key objective for advisory firms, with profitability often outpacing growth rates.
Adapting to Changing Trends
As digital tools like robo-advisors disrupt the traditional advisory landscape, advisors must adapt by developing targeted marketing strategies and focusing on specific niches. Referring clients to other advisors when they do not fit the firm’s target base can ensure a positive client experience.
Building a Strong Foundation
Advisors must be intentional in their client selection process and communicate clearly when ending a client relationship. Establishing a strong value proposition and understanding the ideal client profile from the outset can set the foundation for long-term success.
Reflective moments and adjustments early in the practice’s lifecycle are crucial for building a resilient business. Addressing client fit and value alignment at the beginning can prevent challenges down the road.
