TORONTO (Reuters) - Canadian financial adviser Taylor Hewson said it can be little awkward when he approaches clients of his father’s who haven’t been contacted in years. But most of the time, he comes away with an interested investor to add to his own business.
As second-generation financial advisers in Regina, Hewson and his brother have full permission to mine his father’s list of old, less profitable or neglected clients as they seek to build a partnership and plan for eventual business succession.
“Sometimes they say ‘Yeah, we haven’t heard from him in two or three years,’ so that’s a challenge for me,” said Hewson, 26, a certified financial planner and member of Advocis, the Financial Advisors Association of Canada.
“But it’s also a great experience to take a situation that could have ended badly if someone else had come along and taken over that client, to instead getting that relationship back.”
Veteran financial advisers like Hewson’s father face a classic conundrum. They are overwhelmed by a client list that is too big, and only have enough time and energy to serve the 20 percent who bring in 80 percent of the revenue. But what to do about the rest?
Some, like Hewson’s father, take on a junior partner to lighten the load. Some can even sell part of their client list to a new adviser or interested buyer, which spares the need for a business partnership. But industry insiders believe the majority probably take the easy way out - ignore the problem.
“For every one of me, there are 10 advisers who are going to take the client’s assets and never talk to them again, which is sad,” said Heather Holjevac, a 25-year veteran financial adviser in Oakville, Ontario.
Holjevac said the deferred sales charge model practiced by some advisers - where the adviser gets paid 5 percent up front for selling investments - isn’t practiced at her firm, so she’s only interested in long-term relationships.
But if it isn’t working out, communication is the key. If a client is no longer active, with few assets and no emerging investment needs, she’ll talk to them about lowering her service levels - perhaps replacing twice-annual face-to-face meeting with a phone call or email.
“If you don’t deal with your low-end clients in a proper manner, a dissatisfied person is going to tell six times more people than a satisfied person will,” Holjevac said.
Business consultant Aiman Dally agrees. He said the problem is not uncommon as advisers leave the desperate, hand-to-mouth days of their first few years and realize they’ve found a particular niche that they want to focus on.
“Early on you want to take on as many clients as you can - and you end up spinning your wheels for a long time, because not all of the clients who call you are going to be an efficient use of your time,” said Dally, chief executive of Toronto-based Copia Financial Solutions.
But he said there are ways of ending a relationship honestly without bad feelings on either side.
“You don’t want anybody to just fade away. You want to meet with them, and talk honestly: ‘We started here, you’re now at this stage and you need someone at a more junior level, or someone who can work with you full-time,’” said Dally.
“Then you help transition them to someone else, you make the introduction or recommendation, so they transition well. I’ve found a way to transition them so that I know if I ever need a reference, I can always give them a call. Never burn your bridges.”
Holjevac said another thing to keep in mind is that a cash-strapped client may have wealthy friends.
“Profit is all in the eye of the beholder. Some of the clients I have that are not profitable from an asset perspective are more than profitable on the referrals they have passed onto me,” she said, recalling one client with assets under C$100,000 who recently referred two friends, each of whom have assets over C$500,000.
“You never know what their parents’ assets are like, their friends, their children.”
For Hewson in Regina, neglected clients come in all shapes and sizes, from his father’s earliest years in the insurance business to clients who find out their advisers are semi-retired and no longer available during months-long winter vacations.
Typically, he said, few clients actively leave their adviser out of neglect, but are ripe for the picking if a fresh face comes along and wants their business.
Still, even the most eager young adviser may want to steer clear of some clients to avoid inheriting the problem.
“The bottom 20 percent of most client lists isn’t going to be good for anybody to take on - these people aren’t engaged in their financial situation. But there is that middle group, with good earnings and savings potential, maybe in their 30s and 40s, who just aren’t getting the service,” Hewson said.
“I could have a field day - there is a lot of potential in those clients.”
Reporting By Andrea Hopkins; Editing by Frank McGurty and Kenneth Barry