By default, financial advisors generally think that they should hold on to their clients as long as they can... ideally for the remainder of their careers. That is not, however, always the case, and as a result, news that a client has decided to terminate the relationship out of the blue can cause a certain amount of anxiety... especially when said client has a portfolio that accounts for a significant portion of the advisor’s revenue. Oftentimes, the advisor may not understand what went wrong, why the client left, and whether (or how) they should try to win the client back.
In our 69th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can approach clients who terminate their relationship with a firm without notice, the importance of understanding the reasons for the client’s behavior in the first place, and the potential opportunities that arise when clients decide to leave.
As a first step, it’s important to recognize that not all clients will benefit from lifelong relationships with a single financial advisor, because the reality is that, while a client’s original needs and circumstances may have initially set them up as an ‘ideal’ client, their needs and circumstances will almost certainly change over time, and the same advisor (or firm) may no longer offer what is best suited for the client. Accordingly, the fact that a client has chosen to leave without notice does not necessarily reflect negatively on the advisor. Instead, some clients may simply be uncomfortable about telling their advisor they’d prefer a change, uncertain about whether the conversation may become confrontational.
Yet, with the honest intent of truly understanding what is happening with the client, an advisor can benefit from learning how to better serve the client (even if that means helping the client find a more suitable advisor) and, in the process, potentially find ways to improve their practice (which can involve increasing the frequency of client touchpoints, re-evaluating how services are provided, and determining if the right services are being offered to clients in the first place). With that perspective in mind, advisors can approach the (soon-to-be-ex) client to understand why they made the decision they did, and then identify the best course of action for the client… and for the firm. Generally, advisors following this path will be faced with one of three outcomes: 1) winning the client back by addressing whatever issue was grieving the client, often resulting from a lack of communication; 2) agreeing that the client’s needs have changed beyond the scope of services provided by the firm, and helping the client find a new advisor who is better suited to meet the client’s new needs, or 3) graciously accepting that the client simply wants to leave, with no interest in sharing the reasons why, other than perhaps expressing a desire to seek out new services on their own.
By framing the conversation with the question, “Would you extend me the professional courtesy of walking me through what happened?” and not around how to keep the client’s business, the advisor can provide an emotionally neutral space for the client to express any grievances and concerns, reassuring the client that the conversation is not meant to be a confrontational plea to reconsider leaving, but instead, an opportunity for the advisor to either fix the situation, or to help the client find a new, more suitable advisor.
Ultimately, the key point is that an unexpected client departure can be be an opportunity for growth and learning, as the advisor has a chance to identify mismatches between client expectations and the services they offer, which (at the end of the day) can give advisors insight into how they can improve their practices. And having the confidence to let go of clients who aren’t a good fit for the advisor, despite the fact that it can be daunting to lose clients, can actually end out being an blessing in disguide, freeing up space for the next, more suitable client!
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Kitces & Carl Podcast Transcript
Michael: Good afternoon, Carl.
Carl: Michael Kitces, how's it going?
Michael: I'm doing well. I'm feeling really, really good today. Do you know why?
Carl: I have no idea. I have no idea why you're feeling good.
Michael: Because I'm looking at this wonderful screen, doing this podcast, and the blue couch is back. And I have to admit, it's really high. For those who can't see, the blue couch is literally up to Carl's ears, which is not a normal height for the couch.
Carl: I'm standing up.
Michael: Are you sitting in front of the couch or is the couch escalated here?
Carl: No, I'm standing up. I didn't have time to organize my office and I'm trying to troll you just a little bit with the blue couch. I was originally going to tilt it up sideways, because all my recording stuff is set up for standing, so I was going to turn it sideways. That was going to be fun. I tried to hang it from the ceiling. That was going to be fun. Finally, I just put it on two stools. I can shoulder, lean against it like a bar, yeah.
Michael: I have to admit, because it's been months now, it's even more blue than I remember. It really is a thing of beauty. It really is. My soul is lifted by the blueness of your couch in the background.
Carl: My wife is beyond excited that it's back and it's getting all its glory again.
Michael: Fantastic, fantastic, because it is an honor to your wife's beautiful taste in fashion and design.
Carl: Listen, just for those people who don't know the whole story, we bought this in New Zealand, and I was like, "Why are you buying a beautiful designer couch?" Because it's by somebody, it's a couch by somebody. It's one of those. And I was like, my wife's an interior designer and we moved it to London, and I was like, "We are not taking the couch to London." And then, when we started recording in London, I was sitting in front of it because it was in the right place and...
Michael: Yes, it was.
Carl: ...everybody was like, not only you, but almost every presentation I did during that whole Zoom marathon session we did for a year, was like, "That couch is amazing." I would tell my wife and my wife was just like, "How do you like me now?" The couch has gone from New Zealand, London, back to Utah, so it's a permanent part of the family.
Michael: It's on its third continent now. It's a beautiful thing.
Carl: Exactly. Yeah.
What Should Advisors Do When A Client Suddenly Leaves [2:30]
Michael: Speaking of blue, the perfect transition for our topic today, which was an advisor that had written in. What do you do when you get outbound transfers out of the blue? That situation of just, if you've been in business for awhile, you have had this scenario. You come in one morning, you log into whatever your investment platform screen is, there's a notification. It's an outbound transfer. It's one of your largest clients. It's all of the money. It's just gone. You have been terminated. There was no heads up. It was a long term client. They're gone or at least they're going. What do you do? What do you do in that moment, morning of you seeing the news, the transfer's going out. Crap.
Carl: Right. That's funny because I, like most people that will be listening to this, have had that experience and I can remember exactly what I did. And I think this follows, at least for me, a pattern of what if we were just real? What if we just jumped on the phone and made a phone call and we didn't...there's all these feelings, right? Oh no, they're leaving, should I call them. Oh, I did something wrong. There's all these feelings. But, I remember, it was Doctor, we'll call him Dr. Johnson just for safety. Dr. Johnson had told me, in fact, the story is really interesting. When he first came in, he and his wife, I said, "Hey, in an ideal world, how often would you hear from me?" And he said, "Well, in an ideal world, I'd never hear from you. You'd just handle the money and we wouldn't ever hear from you." I was like, "Oh, okay, cool." So, I took him at his word. We got it all invested, we got everything right, that 9 to 12 months of early relationships, everything's solid. Then, I was like, we didn't talk much. Then, one day, I walked in and there was transfer paperwork, and I won't mention the name of the firm, but it has something to do with catching things in the sea. It was a firm, there was transfer paperwork out to this firm and I was like, "No way am I letting Dr. Johnson go anywhere, let alone there." I just called him and it was a scary phone call because there's all these feelings, feel of failure and confrontation. I just called him. I was like, "Dr. Johnson, what in the world? I thought...what?" We're not talking about this today, but the funny part of the story is he said, "Carl, I never hear from you." I said, "You told me..."
Michael: You told me not to call you.
Carl: I didn't actually tell him that. I said, "Well, wait, from my notes, you said that that was the ideal thing." And he's like, "Yeah, yeah, yeah, but we're not there yet. I kept running into this guy and he kept telling me about their emerging markets thing and their international thing." I was like, "We're doing all of that stuff." And before that, let me just back up, I called, "Dr. Johnson, what's going on?" He's like, "We're moving to this place." I said, "Well, listen..." And I just decided to make it like a joke. I just said, "Listen..." And they lived, like, a five-hour drive from me, so I was like, "Listen, if this is about being closer, totally get it. If it's about a personality issue, totally get it. Let me help you find a home. But, I'm sorry, I can't let you go there," which will go unnamed, "I can't let you go there." He was like, "What do you mean?" I said, "I'm not just going to allow it." He said, "Can you do that?" And I said, "No, but I'm going to." And he was like, "Really?" And I said, "No, I care too much about you. Let's figure out what the problem was, and if I'm not a good fit, let me help you find a good solution." I said, "What was the whole problem?" Then, we got into that whole, “You never called me,” and I had to explain to him, “Well, you told me.” “Oh, what about emerging markets?” “You own them.” We had to go through that. He ended up canceling the transfer and staying, and it was a significant sized client for me, so it was a big deal, but that wasn't the goal. Partially, it was the goal. I think this idea, just jump on the phone. Not an email. I just think there's not enough emotional context. Jump on the phone and say, "What's up? Dr. Johnson, I thought...what did I miss?"
And here's a couple of phrases that I've always found really valuable. One is, and I love this phrase, it was, "Would you extend me the professional courtesy, just walking me through what happened. And again, I may or may not try to talk you into staying. If I do, it's only because I really like you, but I would also just, could you extend me the professional courtesy of just explaining what happened so that we can fix that problem in the future, because I thought things were going well. It's obviously that you thought differently." Just get on the phone and have the call. And if you're sincere about, if you truly believe that you only want clients that are mutually beneficial, you to them and them to you, and you've got a limited number of seats anyway, if you come at it, even if you're not in that position, if you come at it with that belief so it doesn't sound desperate or anxious or defensive. Instead it's like, "Hey, I just want to explore what happened here, and if you'll allow me, I'll either fix it or I'll help find you a home." You got to get that hat on square. If that's the honest intent, only good things will happen. The worst-case scenario, in my mind, is you help them find a new home, you've got a fan, you have somebody who feels good. If you run into them in the grocery store, everything's good. And the best thing that could happen is what happened with Dr. Johnson who just said, "You know what? Forget it, Carl. I didn't know you were doing all this stuff. Maybe you should tell me people more often." That's when the 17 Point Wealth Management Audit got developed, was when I realized, "Wait, we weren't communicating all the things we were doing for Dr. Johnson." What does that leave you with? What do you think?
What Can Advisors Do To Retain The Client Who Is Leaving [09:39]
Michael: There were a few things in there I thought were striking to me. One, I often see this question remain, what do you try to do to win them back? Sorry, I'm not even phrasing this well. How do you make the communication to try to win them back? One of the first firms I was at, I still remember their process around this, and any time that moment came up, it was always, "Well, if you see that, you got to get the client in for a meeting right away and talk about it. We have to do this in person. You have to get him in for a meeting." And their success rate on it was really, really low. It's pretty good if the person came in, but almost no one actually came in.
Carl: Why would you possibly want to do that as the client?
Michael: Yeah, that was what struck me. The only people who came in were basically the people who wanted to be won back anyways and really didn't want to leave. They weren't unhappy about some service thing and basically it was their version of throwing a tantrum or getting some attention or sounding off about it, because they knew as soon as the transfer out showed up they were going to get a phone call within 30 minutes that morning about scheduling a meeting. And at the flip side, I agree with you that just there's not enough context in email. It's too easy to dismiss the email. This is almost always some function of their expectations did not match their reality and you need a back and forth conversation to suss that out and you're not getting that from email. First of all, I, at least struck, having lived some of both ends of that spectrum, I think the phone call is the right midpoint there.
Two Common Reasons Clients Decide To Leave [11:23]
Carl: I agree. Let me just quickly mention something on what you just said. It seems to me that this happens for maybe two reasons. One, either you were truly not delivering on what you promised, or two, they had some different set of expectations that aren't a match with what you do.
Michael: Right, such that they think someone else can give better, something else that better matches their expectation. “I thought you were going to get me a bajillion percent. You're not going to get me a bajillion percent. Someone else told me they can give me a bajillion percent, so I'm firing you for them.”
Carl: I think you could almost treat this like a quick first meeting again, because if they have an expectation that you can't or don't want to, or nobody can deliver on, they're just not aware of that yet, the last thing you want to do is win them back. This is going to be painful. This might be a good opportunity. Sometimes, we need to think that way. Wait, apparently there's a mismatch here. If that mismatch, like with Dr. Johnson, the mismatch was a lack of communication. I owned that. Sorry, I didn't communicate clearly. My fault. In fact, we built systems to fix it after that. That's one outcome. The other outcome could be, "Oh, I see. You want X. We don't do X. I'm glad you found a home and please let me know how I can make this as smooth as possible for you. Tell your new advisor that they can call me directly. I will make this as smooth as possible. If there's anything they need from me, I will happily do it."
To me, that's three outcomes. One, win back because there was some miscommunication. And I would suggest that if there's ever any miscommunication, I would phrase it that way. It's miscommunication, it's not misunderstanding, because miscommunication means we own the problem and we can fix it. So, that one. Number two would be, you just need somebody else. You've got reasonable expectations, you just want a local person, somebody else, there's a personality. Let me help you find that person. Number three would be, "Oh, I'm so glad you're leaving because now I understand you want X and nobody can deliver X. Good luck and on the way out the door, can I please be as nice as possible to you," because all of that...there's a couple reason for that. Karma is one reason. Number two is remember, we've got an industry and a profession to build. So, this thing should not feel like, inside our little industry, it feels criminal. Somebody's stealing a client. In the real world, if you want to get a haircut from a different person, you go to a different person. If you want a different dentist, you go to a different dentist. And we should make it feel that way. How can I help?
Michael: I think indirectly, this ties to even what we talked about last episode. I do think we have a tendency of building up in our heads, team members and advisors have to be advisors for life in our firm because all of our clients are clients for life at our firm, and any client that leaves not in a horizontal box that's 6-feet tall has somehow violated the relationship paradigm. It's like, no. I mean, it's great to have clients for life who literally stay until they die, but people have changing needs and circumstances sometimes and just move on. And when we don't...if we don't have confidence in our ability to get new clients, we tend to get very stuck on the ones we have. And the more confidence that we build to say, "I'm so bummed that you're not going to be working with us anymore. If there's an opportunity that we can continue together, I'd love to know what went wrong and maybe it's something that we can fix. If not, I will still help you find a new destination because I know I'm going to get another client."
Carl: Yeah. Think that's a really important touch. If you walk into that phone call with your head up high and your shoulders square, that sense of confidence, it's like borderline professional arrogance, but it's not. It's just confidence that, "Hey, look, I'm just exploring this," then that's a whole different conversation because yeah, there's more clients. And the last thing you'd want to do is beg somebody who's not a good fit, for any reason, to stay around because they take up a seat, they're a drain on everybody, the service team, everybody. I think maybe you don't treat this as suddenly it's all bad news. You look at it as an opportunity to learn and grow and maybe free up a seat, maybe communicate correctly.
How To Frame The Conversation When A Client Leaves [16:11]
Michael: And the other thing that just jumps out at me about how you frame the conversation, because you are a much better communicator than I am, the first time I had this scenario, I did pick up the phone. But, I don't remember exactly what the wording was, but it was something to the effect of, "I saw the notification this morning that you're moving your accounts out. I'm just wondering if there's anything that we can do to keep your business." Was just like, what can I do to keep your business? And the conversation didn't go very well and I realized in retrospect, the problem and the distinction between doing that, which was my natural response, doing what you did, which is much better, is I had started with, "How can I keep your business?" And what you started with was basically, "I'm going to open the door so you can vent at whatever it is that you're clearly unhappy about."
And it took me a long time, the failing of that conversation, to finally realize you have to start there. There's a reason they're unhappy enough that they're leaving and they know you're going to call. There's a reason they didn't tell you first. Either they're really that upset, or they're really that upset and they're not very confrontational, so they didn't want to have that conversation, so you have to have that conversation, which means as nervous as you are making that phone call, they are more nervous about getting it. Because if they were comfortable with it, they would have told you in the first place because they knew you were going to call.
To me, what's so powerful about the way that you frame this conversation is when you start something, "Would you send me the professional courtesy of walking me through what happened," you're creating space for them to vent, to express whatever the frustration is. You're immediately taking down a notch, something that they were probably fearing was going to be confrontational. And I realize, at least in retrospect, my approach was confrontational because when I started with, "I'm just wondering if there's anything I can do to keep your business," they had spent the past 24 hours preparing in their head how they were going to blow off this conversation with me because they knew I was going to call. And I walked into my own trap by saying, "Is there anything I can do to keep your business." They had their response ready. They already had been practicing in their head because they knew I was going to call. When it starts the way that you framed it, just walk me through what happened, I think there's something very, very powerfully disarming around that, that just opens a much better doorway to that conversation. It starts with them and why are you upset and not starting with me and what can I do to keep your business.
Carl: That's really insightful. I didn't know that that as what was going on. It was just, I think one word that could be really helpful here is, and it's not really a...the word would be understanding, trying to understand. The old Stephen Covey saying, "Seek first to understand before you seek to be understood," and that's another way you could say it. Could you extend me the professional..."My goal really, hey, Michael, I know, I saw the transfer out paperwork. First, I just want to tell you relax, it's all good. This stuff happens. The goal of the call today is I'd love, if you could just extend me the professional courtesy here, I'd love to understand, from your perspective, something must have gone sideways. What happened here?" And if your goal, if you have, as the goal, and you have to change...I don't think you can fake this, this isn't a sales trick, if the goal, you switch the goal from keeping the client to understanding what happened, then I think A, you have a much better chance of keeping the client anyway, but B, it becomes a learning experience and it tones everything down a bit. "Hey, relax, Michael, I saw the transfer paperwork. It's all good. I'm here to help you. Believe me, we will make this seamless. But as a professional courtesy, would yoyu mind walking me through? I'd love to understand what went wrong here."
Michael: And sometimes, you find out that it was a misaligned expectation of a thing you were actually doing, and now you get an opportunity to explain that in context and maybe they turn out to stay as Dr. Johnson did.
Carl: And let's wrap that up with, and sometimes, you understand that it's a totally unrealistic expectation and you get to say, "Oh, okay. Got it. Thanks so much for that." No arguing. You're not trying to debate here. You're trying to understand. "Thanks so much for helping me understand that. Please let your new advisor know that if there's anything I can do to help you, I'm here. Give him my number. Tell him it's all cool. We're all friends. High five at the grocery store. Everything good." I would use that kind of language. I think if we were just relaxed, like human. Anyway, that's super fun. That's a fun conversation.
Why Losing A Client Can End Up Being A Positive [21:50]
Michael: I think the other thing that comes from this, aside from just, open the conversation with, I like it because you frame it from Stephen Covey. Just seek to understand first. Don't do my boneheaded move where I would just ask if there's anything I can do to win your business back. I think there is a piece here of just recognize that this frees up some space for you to go get your next new client. Just be careful not to get so fixated on that classic endowment effect, all the clients I have are mine. They should stay with me forever and it's a personal affront every time someone leaves me, and we can quickly get wrapped up in that. If you change that script for yourself to, "Well, that's a bunch of hours of meetings every year I've now got free time for, so I guess I can go use that to do some prospecting for my next new client since I'm not going to be meeting with that anymore."
Carl: Love that.
Michael: And use it to try and turn it into a positive conversation.
Carl: I love that. Pre-call even. Maybe one step we even forgot is, before you make the call, decide what your desired outcome would be. And then, because if your desired outcome is you...gosh, wait a second, because we do this all the time. We fight, fight, fight to keep something that we really don't want in the first place, right? If your desired outcome is that, then the phone call can be, "Hey, I saw the paperwork. It's all good. Just want to call and let you know that I've enjoyed working with you." Whatever. Say something that's true. And then, "Let your advisor know, sometimes these things can feel a little funny. I don't want any funny feelings here. Let your advisor know they can call me if there's anything I can do to help, I'm here. I want to make this as smooth as possible, so high fives in the grocery store." But, taking a minute, like you're saying, to get clear about your desired outcome, and then with that confidence, shoulders back and head up, yeah, there's more.
Ways Advisors Can Avoid Losing Clients In The First Place [24:00]
Michael: And the other indirect takeaway to me, just your story with Dr. Johnson raised in the first place. Every time we go through a tough market cycle, there's a whole bunch of research that comes forth on who retained clients and who didn't, and which clients stayed and which clients didn't. And basically, every single time the results are identical, which is frequency of communication is the number one determinant of client retention, even more so, sometimes, than the quality or the channel, literally the frequency of communication, that A, I think sometimes we get caught up, as you noted, the clients who say, "We don't need to meet that much or at all," or "I'm cool, just contact me if something's going on," that it's really important to remember. Even if they don't want to talk, you get credit for checking in and asking.
Carl: Yeah, that was my lesson was, don't believe them. If they say, "Oh, just check in with me every six months," that was really where we solidified, we're going to send out a quick note every single month. We actually broke it down to the same...our clients knew, they learned, I remember Dan and Barbara, it was the third Thursday. They knew that on the third Thursday, they were going to get a note, and the note typically just said, "We just ran through your 17 point..." whatever it was, "...wealth management audit. Everything good here. Anything change, let us know." Absolutely. Don't believe...they don't know what they want. If in the intake meeting, if somebody said, "Oh, contacting me twice a year would be great," I would just say twice a year, and then ignore that, and just send a little note. It's just a little note. It didn't need to be intrusive. Totally.
Michael: It could just be like, "Hey, we haven't touched base. Just checking and see if there's anything you want to talk about." If they reply and say no, you still get credit. If they don't reply, they likely still saw it. You still get credit. It still counts of communication even if you don't talk.
Carl: For sure.
Michael: If you think about from that end, when you finish the podcast, log into your CRM, virtually every CRM system has some kind of report you can run that basically says, "When was the last time I contacted this client?" And if you got anybody in there that's longer than three months, go do some kind outreach. It can be as simple as just, "Hey, we haven't touched base lately. Just checking in, seeing if there's anything I can do." If you're a much lower touch firm, okay, maybe you can go every six months. I really wouldn't go longer than that. Often, nothing will come from it, but if you want that person to stick around, just don't allow extended periods of no contact.
Carl: Yeah, and I think maybe just use the Dr. Johnson story, even better, use the Dr. Johnson story as a warning to you to create a system so that's just happening automatically as part of what you do at your firm. Yeah, I think that's super smart.
Michael: Awesome. Thank you, Carl.
Carl: Pleasure, Michael. That was great. Thank you.