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We’ve posted several times on the topic of conflicts of interest created by financial advisors when their objectivity may be compromised, and their interests are not necessarily aligned with their client’s best interests. We talked about the harm it can cause to the advisory relationship. Financial advisors caught up in ethical dilemmas, whether intentional or not, must be ready to take corrective action to save the relationship and keep the trust of their clients.
But what about when the tables are turned, and the client creates a conflict of interest or ethical dilemma? It happens more than you might think—when a client’s personal interests or values don’t align with their advisor’s. The conflict may not be egregious or illegal, but even if it just rubs you the wrong way, it might be time to cut the client loose.
5 Scenarios When Advisors Should Fire Clients With Conflict of Interest
Your goal as a financial advisor is to grow your client base, not reduce it, so firing a client cuts against the grain. But there are circumstances where not only is it the right thing to do, but it’s also best for you and the client. Here are a few examples.
#1. The client shows immoral or unethical behavior
If you have your values on straight, this should be the easiest conflict to spot. It could be something you uncover in a financial review, such as questionable tax practices or expenditures. You pick up that the client is having an affair or deceiving their employer. More directly, your client asks you to buy stock in a company in which he has inside information. It could be your client isn’t aware that what he’s asking is wrong, so you should clarify their intent.
The bottom line is anytime you feel the “ick” from a client, it’s time to let them go.
#2. The client treats your staff poorly
Your staff deserves to be treated professionally and with respect. It’s not uncommon for a client to lash out if they’re having a bad day, but those who are repeatedly rude to your staff should be confronted. If the conflict is due to the client’s interaction with a staff person, you should apologize for the experience and let the client know you will rectify the situation.
However, if such conflicts are routine with a client, they likely have an attitude problem, and further staff interactions could contribute to a toxic work environment. If your attempts to work out the issue diplomatically with your client fail, it’s best to part ways.
#3. The client doesn’t follow your advice
Clients who don’t follow their advisor’s advice or make decisions outside the framework of an established investment or financial plan should be a major red flag for advisors. They are setting themselves up for failure and their advisors for liability. If it’s a trust issue, you need to get to the bottom of it. But, if the behavior continues, it’s not worth your effort. Cut them loose.
#4. The client makes unreasonable demands or expectations
Clients who make unreasonable demands or have unrealistic expectations can put stress on the advisory relationship. Advisors should do everything possible to set realistic expectations for client service and communications upfront. However, if a client continually demands special treatment or tries to micromanage the relationship to the point it becomes unsustainable or stressful, it may be appropriate to end it.
#5. The client no longer fits your ideal client profile
We’ve stressed the importance of using an ideal client profile or persona when pursuing prospective clients. That allows you to narrow your focus and resources to better serve your clients. It’s also essential for re-evaluating existing clients because it’s possible that they no longer fit the profile.
If a client’s financial situation, goals, investment philosophy, or risk tolerance changes drastically, they may no longer be aligned with your interests. For example, a client for whom you’ve developed a long-term investment strategy around asset-class diversification suddenly wants to pick individual technology stocks that may no longer be compatible with the type of services you provide.
In this situation, you don’t necessarily have to fire the client. The client is no longer a fit for your services, so it would be a disservice to continue with the relationship. The solution would be to refer the client to another advisor who can better meet their needs. Under these circumstances, the client will recognize it’s in their best interest.
Firing a client for any reason is a difficult decision not to be taken lightly. It should always be done with professionalism, clear communication, and thorough documentation. When done for the right reasons, it’s in the best interests of all parties involved.
Related: Prospect Red Flags Financial Advisors Shouldn’t Ignore