Being a financial advisor is about helping people with their finances. Which makes it very hard for most financial advisors to say "no" to those who ask for help. Especially given the business reality that at least some growth is usually essential to keep the advisory firm economically viable and sustaining. And for most financial advisors, growth opportunities and new prospective clients don't come along very often.
Yet the challenge is that we are all constrained to the same limited number of hours in the day, week, month, and year... which means it's simply not possible to say "yes" to everyone, forever. At some point, continuing to say "yes" simply means we take on so much that we can't even do everything we said "yes" to. Or we end up saying "no" once we feel overwhelmed and out of time - where there's no choice but to say "no". Which means our “filter” for figuring out what to say yes and “no” to is “whoever asks me first gets a yes, and whoever asks me last gets a no”. And when you think about it, “who asks first” is not really a good way to decide how to allocate your precious limited time!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why as financial advisors, we need to actively think about what kind of filters we use to say "no" to prospective clients and business opportunities, and how those filters tend to change over the course of our career and business growth as a financial advisor!
Of course, when most financial advisors get started, the reality is... you have a lot of time, and not a lot of clients. As a result, the filter for who to accept is usually little more than "anyone who can actually pay me anything". However, as an advisory business continues to grow, eventually you reach a point where you’re seeing about all the clients that anyone has time to see (perhaps 75-100 clients?), and once you hit capacity, you simply can't take on any new clients. At this point, revenue stops growing, and if you want to get it to start growing again, the optimal solution changes: now, it's about getting paid more for each client you work with. Which means the second filter for deciding what to say "no" to, often becomes "am I getting paid enough for my time to work with this client?" At this stage, advisors typically start to target a value of their time (e.g., $150/hour, or $200/hour, or more), and use that as a filter to decide whether a relationship is profitable.
For a lot of advisors, the filter of “will this client pay me enough to be worth my time” is the last filter they’ll ever use or need (and they simply keep raising the dollar amount over time). But for advisors who are thinking longer term about how to build a business, this isn’t necessarily tje best filter. Because sometimes the client who pays the most or is the most profitable now isn't necessarily the best long-term value for the business. For instance, clients who pay one-time commissions or planning fees aren't necessarily as valuable as those who pay smaller-but-ongoing recurring retainer or AUM fees, and clients who have strong referral networks can similarly generate more long-term value for the business (through their referrals) even if they don't pay as much for your time today. Which means considering that "long-term multiplier effect" of some prospective clients over others becomes an important filter to decide who to say yes or "no" to!
But eventually, the challenge that comes for some advisors is that we get to the point where we have the money we need to have "enough". And suddenly, these filters about getting paid enough money, or generating long-term business value, stop "working" as effective filters to make us happy with how we're spending our time. Instead, the filter shifts... often to a focus on an "ideal client profile"... such as those who not only pay you well, but those who are willing and happy to delegate, and actually show their appreciation for the value of your advice. In other words, the filter is no longer about whether it's an economically viable client, but also whether it's one who is fun and pleasant to work with in the first place. And some advisors even go a step further, applying an additional filter of their own core values, and filtering out any prospective client who doesn't fit the advisor's own core values.
Of course, much of the progression only happens as an advisor's business becomes successful enough to enable it. Filtering based on core values won't work very well for an advisor just getting started and who needs to grow their revenue, just as a filter based on revenue doesn't work very well for those who already have the income they want and need. But ultimately, it is important to acknowledge that our time is limited, and we need some filter to determine what we say "no" to! If we don't we'll end up allocating our time based on saying "yes" to whoever asks first, which doesn't work very well regardless of what stage our business is in!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
For today's "Office Hours," I want to talk about a challenge that hits everyone single one of us as financial advisors at some point: our personal capacity. The fact that we only have so much time in a day, week, month, or year. And moreover, that our brains can just only handle so many client relationships before it just gets overwhelming, as there's too many people to keep track of.
And the reason that personal capacity matters is that at some point you have to start saying, "No," to things. It's inevitable. If you don't, you'll just end up taking on too much and then not being able to even do all the things that you said, "Yes," to in the first place. Or you'll end up saying, "No," to the last thing that someone asks you because you're out of time and have no choice, because the things that you already said, "Yes," to that you gobbled up your time and you have to say, "No," to whatever comes later. Which basically means your filter for figuring out what to say, "Yes," and, "No," to is, "Whoever asks me first gets a 'yes' and whoever asks me last gets a 'no.'" Which, when you think about it, "Who asked me first," is not really actually a very good way to decide how to allocate your precious time.
Now I know that saying, "No," is really hard for most of us. I'll admit it, it's incredibly difficult for me because I do what I like to do and I like to do it because I like to help people. So when you're in a helping business it's really hard to say, "No," when people ask for help.
But the reality is that you can't say, "Yes," to everyone. You can't help everyone who asks you, which means you're just, at best, going to end up saying, "No," to whoever asks last, regardless of whether they might have really been the ones that needed the help the most.
And so I wanted to talk today about this idea. How do you decide what to say, "No," to? As I like to put it, what's your filter? What's the criteria that you use to decide when you're going to inevitably have to say, "No," to something? And can you come up with a better way to do it than just, "Whoever asks first gets the 'yes' and whoever asks last gets the 'no?'"
Your First Business Filter: Anything That Brings In Revenue [Time - 2:12]
Now, to be fair, when you first get started in the advisory business, the reality is that we tend to have a lot of time and not a lot of clients, which means you actually don't really need much of a filter, or basically your filter becomes anyone who can actually pay me, right? In essence, anything that brings in revenue in the early years meets the filter requirement. And if you can't get enough opportunities that bring in revenue, you might even give it away for free for a while.
How many of us did pro bono financial planning in the early years, which was basically a nice euphemism for, "I'll meet with anybody I can who is actually willing to meet with me, help them in any way I can, and pray that they actually do some business with me at the end." It's the sad reality, that's how most of us get started.
But, at some point, you get a couple years in and the question starts to arise, "Does this actually bring in any revenue for my business?" It becomes the first filter we use, because after two or three years you've got some clients you're seeing, you got some prospects to see, you're managing a business that's starting to grow, and you have to start making that decision, "Do I just keep giving it away for free?" And you say, "No, my time is valuable. I need to get paid." And so, "Am I getting paid for my time?" becomes your first filter on what to say, "No," to. If I'm not getting paid for my time, I'm not going to do it.
Your Second Business Filter: Anyone Who Can Pay Me “Enough” [Time - 3:28]
Now as the advisory business continues to grow, eventually you reach a point where you're seeing about all the clients that any rational financial advisor can see. Most advisors find this wall somewhere between about 75 to 100 clients that you're actually actively involved with. And depending how quickly you grow, that probably means you hit that wall anywhere from about year four to year eight in the business.
And the problem is that once you hit this capacity wall, as an advisor, you stop growing. Because up until this point your business was growing by adding new clients and your revenue was growing because each new client brought in revenue. But when you hit capacity and you can't take on any more new clients, or you don't even have time to market and meet prospects and try to get new clients, your revenue goes flat. It stops growing.
And if you want to get it growing again, the solution becomes pretty simple. You have to get paid more for each client that you work with, which means a new filter starts to come in on what I'm going to say, "No," to. It's not, "Am I going to get paid to work with this client?" It's that, "Am I going to get paid enough to work with this client?"
Your Third Business Filter: What Has A Long-Term Multiplier Value? [Time - 4:30]
In other words, it's no longer about getting paid for your time, it's about getting paid a certain dollar amount for your time. For a lot of advisors this is what starts that classic pruning process where you rotate out small clients. We've talked about this in prior "Office Hours." And replace them with bigger clients, people who can pay more for your time, because that's the only way you can grow your revenue in your business if you can't handle any more actual clients.
In fact, at this stage, I actually see a lot of advisors set a target, like a literal dollar amount target for the time. You might say, "Okay, my goal is to hit $300,000 in gross revenue this year. In order to do that with 2,000 working hours in a year, my time is worth $150 an hour. So I'm not going to do anything that isn't worth $150 an hour in my business."
And once you have that as a target, you can then start saying, "No," to anything that isn't worth $150 an hour in your business. If you can take a task and delegate it to someone who's paid less than $150 an hour, you delegate it. If it's a client who can't generate at least $150 an hour for your time, you fire the client, or graduate them, or transition them away. If it's a prospect you won't be able to generate at least $150 an hour for revenue, then you say, "No," to the prospect. So the filter becomes, "Can this client pay me enough to be worth my time?"
Now for a lot of advisors that filter of, "Will this client pay me enough to be worth my time," is the last filter that you'll ever use or need. Not that your business stops growing, but if you want to grow your business at that point, you just keep adjusting the filter. First it's only clients that gave me $150 an hour for my time. Then it's $175 an hour, then it's $200 an hour, then it's $250 an hour, and so on. You just keep moving up the targeted value of your time and saying, "No," to any prospects or clients that don't fit the filter, and then find a new higher dollar amount for the filter, and just keep repeating the process and moving up market.
That, in truth, is why so many independent advisory firms end up with million-dollar minimums, because they just keep lifting up the, "What's my time worth," filter. But for advisors that are thinking long-term about how to build a business, that, "What's my time worth," filter isn't really quite enough. Because the truth is, there's lots of different ways I can get paid for my time now, but not everything that pays me for my time now is worth the same thing in the long run.
The classic example is this. Imagine two clients. The first is willing to pay me a $6,000 financial planning fee for a plan I can deliver in under 20 hours. I'm going to make a couple hundred dollars an hour. It's a pretty darn good use of my time. But the second client is willing to transfer half a million dollars in retirement assets for me to manage and provide ongoing financial planning for a 1% AUM fee, which means I'll get paid $5,000 from this client.
So client number 1 is going to pay me $6,000, client number 2 is going to pay me $5,000 for what might be comparable hours of work. But client number one pays me once, it's a one-time planning fee and then they're gone and they may not be back. Client number 2 pays me $5,000 a year recurring, at least assuming I service them well enough to retain them, which means they're a far more valuable client in the long term even if I get paid the same or a little bit less this year.
So there's a long-term multiplier on the value of a recurring revenue client over a one-time client, even if it's the same revenue this year. And the same thing applies when we're looking at commissions versus recurring AUM fees. We talked about this in the past in the blog as well, but that's the power of switching from a commission-based model to an AUM fee model. You may have the same number of clients, and you may even have the same annual revenue this year, but in the long-term, it starts to shift. And, in the long-term, the multiplier effect of AUM fees compound over time.
So that becomes the next filter about what to say, "No," to. It's recognizing that not everything that pays you for your time now, this year, pays you the same in the long run. Now the most obvious way to screen this is, "Who will pay recurring revenue versus not, versus one time? A one-time fee this year versus recurring AUM is better." But this isn't just about recurring revenue versus generating one-time planning fees. This is even relevant in which clients, even which recurring revenue clients you take.
Imagine this situation. One prospect who approaches you is a recent retiree with $1 million who just moved to the area looking for an advisor, a great client for most of us. The second is a respected CPA who's been active in the local community here for 30 years and is now retiring, selling his accounting practice for $1 million, so he has more time to get involved with local nonprofit boards.
These are both million-dollar account opportunities to manage or provide ongoing financial planning device. But one is new to the area with few connections for potential referrals. The other is a pillar of the community, a classic center of influence. He's both recognized and respected accountant, and now will be spending all of his free time with other leaders of the local community who are participating on local nonprofit boards.
If you've got limited time and capacity and you can't serve everyone, which one do you say, "No," to? The one that might pay a good fee but won't have a multiplier effect, or the one that can cement you in the local community as a go-to? And that's actually why there's such a powerful multiplier effect that comes from having a niche as well. I've long lived a version of this in my speaking business as well. I get invitations to a lot of events. I speak for most of the advisor membership association's national conferences, as well as for broker-dealers and insurance companies.
I also get a lot of invitations for consumer facing events. And I turn down 100% of the consumer events that I'm asked to speak at. It's not that some of them wouldn't pay pretty well. A few of them do. Some would even pay more than what I get to speak at advisor events. But the issue is that there's no multiplier effect, because my niche focus is our financial advisor community. So speaking at advisor events, whether it's membership association, broker-dealer, or an insurance company, is an opportunity for me to meet more advisors, get seen at events that can get me referred to other people in the long run, and grows my business in the long run.
A consumer event may pay me well, but it's just a one-time event. There isn't a multiplier effect, especially since a lot of those events even limit you from holding out as an advisor, so I couldn't even get advisory clients for our advisory firm as well. But the point is when you work in a niche each new client that you get isn't just the value of the client, it's the value of going deeper into the niche. And that multiplier effect is why focusing on the niches ultimately build bigger, higher-value businesses.
But the underlying point is simply that from the filtering perspective, when you can only work with so many clients and you only have so much time, at some point it's not just what's worth your time today. It's, "What has a multiplier effect in the long run?" And that becomes the filter to decide what to say, "Yes," and, "No," to.
Now the challenge that starts cropping up for some advisors is that, eventually, we get what we need to have enough money. Where my kids will be able to go to college, and I can live the lifestyle I want. I can be financially independent, and retire when I want. And then suddenly it's no longer just about the money anymore. And so using, "Who pays me for my time," or, "Who pays me more for my time," or, "Who has the best business building multiplier effect," starts to break down as a filter. It's a sign that you need a new filter.
And this, to me, is where the idea of having an ideal client profile becomes so important. What kind of person do you want to work with? What kind of relationship do you want to have with your clients? Because once it's not about the money anymore, it's about how you actually spend your time and whether you enjoy your clients, making sure your clients are people that you actually enjoy working with suddenly becomes very important. It becomes a new filter.
And so, if this is your struggle – that it's really not about making money anymore – and the, "What's my time worth," filter is breaking down for you because now you're starting to talk to people and work with people that you don't actually enjoy working with (they pay you well, but you don't like working with them) then it's time for a new filter.
Your Fourth Business Filter: Who Is Your “Ideal” Client? [Time - 12:18]
Now your question is, "Who is your ideal client?" Not based on what they can pay you, but based on what they're like to work with. Do they want financial planning? Are they appreciative of financial planning? Are they willing to delegate? Are they pleasant to work with? Now early on that's a hard filter to use, right? Because we're not earning enough revenue to pay my bills. "Can they pay me," is a better filter, or, "Can they pay me enough," is a better filter. Not, "Are they fun to work with?"
But this is the whole point, that as your business grows and evolves, filters you use to say, "Yes," and, "No," need to change, they have to change! And I see a lot of advisors who are now 10 and 20 years into their career where this becomes the filter they need to rely on to decide, "Which clients do I keep, which prospects do I take, and which clients do I let go of, or which prospects do I say 'no' to?" The ideal client profile becomes the filter when it's not necessarily about money anymore.
Your Fifth Business Filter: Who fits your “Core Values” and Legacy Goals? [Time - 13:07]
Ultimately, that brings us to the fifth and final filter that I see some advisors use, which is about, "What are my core values? What uses of my time fit my core values?" This isn't just even about, "Do they value my services? Are they pleasant to work with," anymore. This is about, "What legacy do I want to leave behind? Are there people that I want to work with for free because it's important to me and my values, regardless of whether it's got a dollar amount, or a long-term multiplier effect, or whether they're simply pleasant, and fun, and enjoyable to work with, or not?"
This is the filter when you're finding the business is great and you enjoy your clients, and you still feel unfulfilled and that you want more. Or maybe because you're actually so good at growth and bringing in prospects that you have all the clients you need, even when they all pay you what you're worth for your time and fit your ideal client profile. And you just need a new filter to figure out how do you say, "Yes," and more importantly, "No," to the opportunities that are coming in that aren't a fit because you just only have so much time?
My goal here isn't really to tell you which of these filters are right for you, although I do see certain filters crop up very consistently at certain stages and depending on how many years you've been a financial advisor. But the point is just to remind you that we all have limited time and capacity, and that you need some filter or you will get stuck in a trap where you keep growing your business and adding clients, and adding staff, and reinvesting more, and working harder... all because you just couldn't figure out how to say, "No," to a prospect.
I see so many advisors that justify, "I want to grow and I need to keep growing," by saying, "I want to help more people." Now great, if you really want to help more people, wonderful. Sell your firm, start doing large group workshops and speaking in front of large audiences, and reach 1,000 times the people for a fraction of the income.
But for most of us, the truth is we do want to help people, but the goal is not literally to help more people in the widest reach. We want to be helpful but the growth, growth, growth, more, more, more phenomenon isn't actually about desire for growth and more. It's because we can't figure out how to say, "No," to anyone.
I hope you'll think about this in your own advisory firm and in your own career. Do you ever say, "No," to an existing client or prospect? If so, what filter do you use to decide that? And do you need a new filter? Is the one you're using actually taking you down the road of spending your time where you want? Or is it time to change your filters and change where you spend your time?
I hope that's helpful as a little food for thought today. This is "Office Hours" with Michael Kitces. We're normally 1 p.m. East Coast time on Tuesdays, but since everyone was out yesterday for the July 4th Independence holiday, we're broadcasting here on Wednesday, July 5th instead. Thanks for joining us, everyone, and have a great day!
So what do you think? Do you have a hard time saying "No" to prospects? What's your filter for saying "No" to prospects? Have your filters changed at different stages of your career? Please share your thoughts in the comments below!
I’ve seen a few books of business in my short tenure, and what includes some advisors that brought on any client for any reason at any economic point–including one time insurance sales or the migration of a single A-share fund that worth under $5k.
One good “no” filter is if the prospect is seriously disillusion about everything and refuses to listen. To work with someone who believes they’re going to get 12%+ returns risk free and be able to pull down 10% of their portfolio each year with zero risk… those people you can speak with, but if they ignore all your advice in the prospect meeting, it might be best to just let them work with someone else.
Tunc Tanin says
My filter is always if they are likeable. Because if I don’t like them, I won’t like the referals they give me either. If you built your business by raising the hourly fee, you could end up with 100 million AUM and 100 clients and have a really lousy relationship with them. It also makes it easy for your competition to steal your clients if your business model is built on such practices. In addition, it means once clients are in a distribution phase they feel left out as their account balances are slowly going down at the same time the advisor is looking for larger and larger accounts. It is interesting how many advisors fall for this trap and end up hurting their company resale value down the road.
With the way technology is moving, there is more value in clients who are willing to work with you online and who are tech savy enough to not require face to face meetings. I also have a filter if they are willing to work with my assistant or paraplanner and set the expectations at the beginning that I outsource certain activities.
Clarissa Hobson says
Hi Michael, How do you suggest creating firm-wide policies using this filtered approach? It would be nice to be able to say that our firm charges $X for a financial plan with a certain degree of complexity across the board so that we can standardize our service model, but that’s tricky when you have a number of different advisors at different stages in their careers who would have different filters. Thoughts?
Coach Maria Marsala says
For sure, you’re on the right track with a pricing sheet for your niche. Segmenting your client base also allows you to see who are your ideal clients. Then create The Go/No Matrix — list of ideal client “Prospect Factors” and use that help you (and your team) determine the top characteristics of your ideal client. Rate new prospects to determine if they are a “go” or “no-go” for your firm.
Brad Tinnon says
Well said Michael! I do find it very difficult to say no to people, but your absolutely right in that you have to simply b/c there isn’t enough time in the day to service everyone. We are in the process of refining our fee schedule and service offerings so this was a very timely video. Thank you!
Coach Maria Marsala says
Saying no, is about setting boundaries, and it’s about taking care of yourself, your business, and even the time you spend with your family! But more importantly, it is an excellent tool to help an advisor not get burnt out!
When I work with advisors who are burnt out, I have them create a weekly Executive Scheduler (most don’t have a moment to spare, so a scheduler helps them “see” where “no” is important.)
In the niching process, creating a “Go/No Go” list helps determine firm-wide if the prospect in front of you is a go… or no go. (Ideal client for your firm or not).
And another tools is to pre-choose ways to say no, based on situations that have already happened. There are a few ways in the middle of this article: http://www.elevatingyourbusiness.com/advisors-say-no-set-boundries-for-freebie-seekers/