Ending a client relationship can be unsettling, especially if a relationship spans many years or you believe the client is always right. You may be torn between the desire to maintain a client relationship and the difficulties it creates for your business. Whether it’s difficult or non-profitable clients or whether you need to make operational changes, rather terminate the relationship, as this will help your business in the long run.
Despite the discomfort this process may cause, there are many reasons to assess your client base from time to time and terminate certain relationships. You may be planning to retire and want to down-size your business, or you may be unable to service some clients due to operational constraints. Alternatively, you might have too many clients to service them all effectively, treat them all fairly or fulfil all your regulatory obligations. Some clients might be unprofitable or are so unpleasant that you decide the relationship must be terminated even though they are profitable.
Understand your clients
Before deciding which client relationships to terminate, you need to thoroughly understand your clients and how they influence your business. To start, sort and prioritise your clients. Use a segmentation model to segment your client list and identify both the client segments that produce 80% of your profit and their profiles. Top clients typically provide your most profitable work. You receive referrals from them, increasingly provide services to them and you enjoy working and interacting with each other, both professionally and personally. These clients are probably also responsive, use similar technology to you, are open to recommendations that suit their financial needs and objectives, and rarely query your financial planning fee.
Secondly, identify clients where the cost of doing business with them outweighs the benefits. Less profitable clients can harm your business, for example, when the amount of time spent per client exceeds the return on your investment.
Also identify clients who are difficult to deal with or with whom you do not have good relationships. These clients may be a good source of revenue, however, the time they take up and their manner of interaction with your business are neither good nor a productive use of time. Terminating these relationships could improve staff productivity, as your employees do not have to deal with time-consuming problems. It can also improve morale, as your staff members do not have to interact with unpleasant people in general. It may be more important that employees find their workplace positive and rewarding than it is to get revenue from difficult clients.
Consider how you could better spend your time. You could find new clients, spend more time with top segmented clients and cultivate referrals from them, or expand your services to fulfil another financial need.
Meet your obligations
Ensure that you understand your duties in terms of the FAIS General Code of Conduct for Authorised FSPs and Representatives. Also check if you have met the contractual obligations (both business and compliance) of your Service Level Agreement. Ask yourself if you and your office have dealt with the client appropriately, responded promptly to correspondence and competently handled complaints and queries.
Before proceeding, it is important to terminate relationships without causing clients distress or burning bridges, even when relationships are strained. To leave clients’ dignity in place, maintain your integrity and client confidentiality, and take a professional approach.
Let clients go with dignity
One way to let clients go in a graceful manner is to ‘graduate’ them to become self-directed. Tell clients how you helped them over the years when they needed financial advice and that they are now ready to do this on their own. Clients will feel good about what they have accomplished with you. This strategy is good for especially smaller clients who have been with you for a long time. It should only be followed if you believe they can assess their own situation.
You could also refer clients to a more suitable FSP. Advise clients that you have assisted them as far as you can and that you want to refer them to another FSP that might be a better fit. Identify and discuss the referrals with the FSP. Make sure it is suitable for your clients and there is a process in place to secure your clients a space with this business. The FSP must be able to value and look after your referred clients.
Another alternative is to sell the details of non-profitable clients to another FSP, if there is economic value in the client list for the other FSP. Be fair in terms of what you charge for these clients, as the main goal is to be fair to both the clients and the proposed FSP.
With RDR on the horizon, you could also start positioning financial planning fees. You could say you are instituting a new service for your clients, but to deliver this service effectively to the level that is fair to clients and effective for the business, there is a minimum annual fee. Communicate a date from when this fee will be charged.
Another option is to charge fees for doing unproductive work and where no previous commission or ongoing fees have been or are being received.
When terminating client relationships, FSPs must make sure that they follow the correct compliance process set out in the General Code of Conduct. This must include:
- informing the client of your intention to end the business relationship,
- ensuring that any transaction which is in progress is fully completed,
- requesting relevant product suppliers to remove the FSP and representative as the servicing intermediary on all the client’s products and to cease paying commissions, and
- inform the client that all records will be kept for a period of 5 years.
FSPs must also make sure that none of the clients’ information is given to another FSP or third party without written authority from the client to do so. It is a good idea to make sure that your staff are properly trained on the process so that you safeguard your business against any possible regulatory action or complaint.
By following your documented business procedure and taking a step-by-step approach to terminate relationships with clients in a gracious way, you can part ways ensuring their dignity is maintained. Keep a written document that sets out the process and reasons for each termination. When the process is complete, your business will be on a path to greater sustainability.