The fundamental purpose of financial planning is to help clients achieve their financial goals, which means ultimately it’s all about the client. After all, if there are no clients to pay the bills, there is no business.
Yet in this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I explore how ultimately, focusing an advisory firm too much on the wants and needs – and whims – of the client can undermine the morale and motivation of employees. Which is a real problem, because while clients pay the bills, there’s no business without the people who work in it!
Accordingly, as an advisor/owner, you might consider which is really more valuable for your business: your top client, or your best employee? Many “client-centric” firms immediately state its their top client, even though the reality is that losing a key employee could cost the business 10X more than the impact of “just” losing the best client.
In fact, the reality is that building a successful business is so reliant on developing great people, that in the end you might even consider giving your staff the power to fire the most “pain in the ass” clients – the ones with a high “PITA” factor, whose departure may really only have a small impact on the revenue of the business, but a huge positive impact on the happiness (and productivity, and loyalty) of your team.
So in the end, think carefully about whether you’re really a client-centric firm… or whether it’s better to be an employee-centric business first, to ensure you have the employees you need to serve your clients best!
(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!
As many of you know, I’m an owner/partner in both an advisory firm that serves individual clients, and also a number of other businesses that serve you as financial advisors.
But today, I want to talk about something that was ingrained in me early in my career when I was still an employee.
Early in my career, I worked as a planning associate in an advisory firm, that had a very structured systematic process of evaluating its client base. Every year, we would score clients in order to segment them. Factors would include one-time revenue, ongoing revenue (we were a blended fee and commission firm), additional potential to do business, whether the client referred us, and how often they referred us.
We would use the scoring across those categories to separate clients into A-tier, B-tier, and C-tier clients. And then similar to other firms that segment their client base, we would bundle extra services in for our “A”-clients. We would do full financial plan updates for them and not charge them separately, as well as invite them to special annual events for just our A-clients.
Scoring Clients For The PITA Factor [Time – 1:26]
But the most unique part of the process – and the thing that I still remember so clearly now, 15 years later – is the fact that in this spreadsheet, there was a column called “PITA”. For those of you who aren’t familiar, the PITA factor is short for “Pain In The Ass”. You know what I’m talking about… the clients who are a real pain to work with – rude, unpleasant, and overly demanding (in not very constructive ways).
As an employee, what was special to me about this firm was that the PITA score was not set by the advisor. It was set by us – the employees, the paraplanners and operations staff. We scored clients on how difficult they were to work with.
And it mattered. We could swing whether or not someone ended up being an A-client or a B-client. Clients who paid us a lot of money but were that painful to work with did not get scored as A clients. Because the PITA factor actually got a very significant weighting in how we ranked and evaluated clients.
On top of that, not only did employees get a chance to score clients on the PITA factor to determine whether they were going to be A-, B-, or C-clients, but the firm actually went further.
Every year we would collectively vote as the employees on up to three clients that would get “fired”. As the employees, we got to choose three clients that we couldn’t stand working with – as reported in their very high PITA score – and the advisor had to release them from the firm!
It didn’t matter whether they were A-clients or B-clients or C-clients. If they were at the top of the PITA chart, the top three were out. And it was actually a very exciting time for the staff! We would all get together every December, and have a meeting for an hour to decide which three clients we were going to fire from the firm. Then, whichever advisor’s book of business they were on, would get to go and deliver the news to the client that we couldn’t work with them anymore.
It’s worth noting that, at that time, the firm had already been around for about 15 years. We did have hundreds of clients, so we weren’t blowing up the business with a hit of losing three clients, even if some of them were A-clients. But, from the staff perspective, I can tell you that the value to the firm in terms of our productivity as satisfied employees greatly outweighed the revenue of any clients that we were going to lose!
Because the truth is, with those really demanding clients, it’s often the front line staff (the operation team, the admin team, and the planning associates) – rather than the lead advisor – who bears the brunt of the unpleasant requests and interactions. The implicit (and essentially explicit) message from the firm was that “we care about your happiness as employees more than a handful of clients that are making you miserable, regardless of the fact that they happen to pay us.” That’s very empowering as an employee!
Who’s More Valuable: Your Best Employee Or Your Best Client? [Time – 4:26]
The idea of letting your staff have input about which clients you take on or you keep, really fits within a broader theme worth exploring: What’s more valuable to your business at the end of the day, your best employee or your best client?
Mark Tibergien, formerly of Moss Adams Consulting now CEO of Pershing Advisor Solutions, gives this fantastic thought leadership experiment about this.
Imagine that you’re sitting in a meeting with your best employee, talking about some difficult issue that’s come up for him or her. Suddenly, your phone buzzes and you see (or maybe your admin staff tells you) that it’s your best client calling, and she wants to talk to you right now. The question is, what do you do as the advisor/owner? Do you take the call from your best client and tell your employee you’ll wrap up later, or do you let that client go to voicemail and call her back after the meeting with the employee is over?
As financial advisors, we’re in a client-centered business. My gut feeling is that most of us as advisors are probably thinking “we’re a client centered firm, so of course I’d take the client’s call immediately”. Particularly if it’s a top client, and she says it’s urgent.
But, for all of you who are firm owners, I want you to think for a moment about how that feels to your key staff member. How does it feel to them, when you implicitly communicate that their serious issue as a long term employee is still not as important as one client to the firm?
Even though your firm probably has dozens or even hundreds of clients (by the time you’ve got a lot of employees)… one client out of them all is still more important than one key employee? That’s what you communicate to your team when you say, “Sorry, we’ve got to pause this important conversation, because I’ve got to take a phone call from a client.”
Who’s REALLY More Valuable: Your Best Employee Or Your Best Client? [Time – 6:15]
Let’s do the math on this. As many of you know, I’m a nerd. I like to do that math on these things.
One top client probably pays you thousands, maybe even tens of thousands of dollars for some of you. What does your key employee cost? Is that $75,000? Is that 100,000? Is that $150,000? Is that a senior advisor and they’re getting paid even more? What’s the cost to the business of losing a key employee that doesn’t feel supported? Between the lost productivity, impact to clients when the key employee leaves, costs to replace the employee, training a new employee, getting someone else up to speed, lost capacity and growth momentum?
The management rule of thumb is that turnover can cost you 100 to 150 percent of the staff member’s compensation in direct and indirect costs.
Which means the reality is that you may have cost the business a few hundred thousand dollars spurning an employee to take a call from an admittedly valuable client, but one who probably generates a tenth or less of the value of that employee.
Even worse, the truth is that the client who’s calling doesn’t even really know if you’re available or not! For all they know, you’re in a meeting and you just aren’t available. In fact, you are in a meeting and you’re not available… because you’re meeting with your key employee!
I know some of you are probably still stressing about the idea of letting this key client’s call go to voicemail. But if you have a client who literally thinks they trump every other possible client and staff member you have, then I’m sorry, that’s a problem client with a very high PITA score who needs to go. That’s a client who needs to be eliminated from your business, because their toxic attitude is going to impair your business, your team and their motivation, and that client is putting you in lose-lose dilemmas where you have to make this kind of choice.
Clients Pay The Bills But Your People Are The Business? [Time – 8:44]
The fundamental point is to recognize that if you’re in a business – not just a practice built around yourself, but a real business that has staying power and economic value that goes beyond just you and the work you do with your clients –then the most valuable asset in your business is your people. And showing your employees that they’re actually the most valuable thing to the business is crucial. Even more crucial than the clients!
I get it. The clients pay the bills. But, you can’t serve the clients without your people. You won’t have a business without your people, and then your clients will leave anyway. Showing your employees that they’re what’s most valuable to the business is incredibly powerful.
So I want you to think about that, the next time you’re in one of these situations as an advisory firm owner. Think about where you’re placing priorities. Do you empower your employees to fire the clients that have the highest PITA score and negatively impact the business (recognizing that the loss in revenue from those clients is more than recovered by the improvement in morale, efficiency, and staff retention)? If your best client calls while you’re talking to your best employee, do you let the call go to voicemail so you can finish with your employee? What message are you sending when you take that call?
I suppose the ideal is that you let the employee make the decision, because it’s actually the employee’s client because they’re the senior advisor and you have shifted all the clients to them! But, until you reach that point, while this is your client and you’ve got to make a decision between your client and your employee, be cognizant of the message that you’re sending when you communicate to an employee that one client’s happiness is worth more than a key employee’s. Because that’s how you cause staff turnover in your business, and that’s how you lose good employees.
So I hope that’s helpful food for thought. This is Office Hours with Michael Kitces 1:00 p.m. East Coast time on Tuesdays. Thanks for hanging out with us today, and have a great day!
So what do you think? Is your top client more valuable than your top employee? Would you be willing to let your employees vote to fire clients? Have you ever lost a great employee because you failed to get rid of a difficult client? Please share your thoughts in the comments below!