Don’t take a client for the wrong reasons

THE SITUATION

A prospect enters your office.

After some initial questions,you’re confident he’ll exceed your asset minimum. But you’ve got the nagging feeling he’s more trouble than he’s worth.

How do you confirm what your gut says?

Asking the right questions means you’ll get real answers that help you build a productive advisor-client relationship—or sidestep a potential landmine.

5 REASONS to screen carefully

If you smell trouble, turn the client down. If you don’t, you could:

• Demotivate your team. Unsuitable clients divert resources from productive and enjoyable accounts.

• Cut commissions on trades when a client complains because you want to keep the assets.

• Risk legal action if a client consistently deviates from your financial plan and then blames you for poor results.

• Incur (and cover) debit interest because the funds your client said would arrive by the trade settlement date are late. If it’s a large amount, expect phone calls from compliance and your branch manager.

• Be forced to sell other securities in the portfolio at a loss to cover any shortfalls related to late funds, compounding the damage. Or, you’ll trigger an unwanted capital gain that has tax consequences.

FOR EXAMPLE:

ASK How do you see us working together? NOT How much do you have to invest?

ASK What have been your best experiences with advisors? NOT Why are you switching advisors?

ASK How much detail would you like? NOT Are you going to take my advice?

ASK What do you expect from your financial advisor? NOT Do you expect me to time the market?

When you ask the wrong questions, the conversation ends quickly. And, lacking information, you may take on a prospect who doesn’t truly fit. Perhaps they were referred by a big client—a good sign, but not foolproof—or just left a major competitor, making it tempting to gain the business.

Further, the wrong questions prevent you from building rapport that could be handy later; say for a prospect who has the earning potential to one day reach your minimum.

To prepare for the meeting:

DEVELOP A CLIENT PROFILE.

Use your top clients’ shared characteristics, personality traits, and investing styles to figure out who you’re looking for. Example: liberal-minded art lovers who’ve just experienced a liquidity event.

DECIDE WHAT’S NEGOTIABLE.

If you need the revenue, you may compromise on points such as a prospect’s life stage. List the issues you won’t budge on (example, never advising your own family) and revise it often, especially after a negative client experience.

DIG DURING DISCOVERY.

Use answers to regulatory questions to prompt deeper discussion rather than moving to the next line in the KYC form. Example: a prospect insists on owning a steadily declining stock. This could be a red flag, or probing could reveal it’s because his late father gave him the stock years ago. Once you understand the motivation, you can honour his father through a sound strategy like planned giving.