Choosing Your Clients Wisely

September 03, 2015

This article originally appeared in our September issue of ETF Report.

If only there were a Tinder App for client selection—swipe to the right if you like the person, to the left to pass; when the liking is mutual, voila, a connection is made.

If technology has made finding your soulmate easier, it has done little to help advisors build client rosters with individuals who see investing the same way they do. And the truth is that finding the right client is just as important to an advisor as finding the right advisor is to a client. The right fit is crucial if the partnership is to be fruitful—for both parties—in the long haul.

To quote Joe Goldberg, wealth advisor at BAM Advisors and part of the BAM Alliance—a vast advisory group that can manage accounts of all sizes: "The wrong client can have a sizable portfolio but lead to an unprofitable relationship if the expectations aren't appropriate, or behaviorally they are not comfortable with the service model or strategy."

Mutual Expectations
To Goldberg, this mutual relationship centers on having the right expectations on both sides. So how do advisors know when a client is that right fit?

Today the client selection process in advisories across the country is pretty old-school. They often begin with a referral, follow up with meet-and-greets, conversations and questions upon questions, and end in a good number of potential relationships that never get off the ground.

If you thought finding the right client was easy, consider that at Harbour Financial Resources—an RIA in the Chicago area with some $135 million in assets under management—about 40 percent of the time, prospective clients don't make the cut for one reason or another. And Harbour is the rule, not the exception.

"We turn away potential clients quite often," Harbor Financial wealth manager Mike Vieceli said. "I would prefer to spend a little more time sizing up a prospect than getting into a relationship that wouldn't be mutually beneficial. I just chalk it up to marketing time/expense."

Unfortunately, there's no universal trait or characteristic advisors look for, even if their ultimate goal is universal: to establish a relationship that will be long-lasting and that will grow over time. To each, it comes down to looking for things in a client that reflect what matters most to them and their businesses.

Choosing Clients Wisely

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Minimum Account Size
Perhaps the most commonly used metric to narrow the pool of prospective clients is account size minimums. If an investor doesn't meet your threshold, they're out.

These minimums vary from shop to shop because different advisories have different economies of scale, and to some, it's just not worth the cost of managing money for really small accounts. To others, they see little potential to add value for a fee for certain account sizes.

Kim Nordmo, who founded Artience Capital in San Francisco in 2009, and manages about $55 million today, requires $1 million minimum. The relatively high bracket comes from her firm still being small, and boutique-y. But that doesn't mean she would turn prospective clients away on that metric alone.


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