Maximizing client profitability is critical to running an efficient business. And advisors know all too well that some clients are, to put it charitably, less than profitable. They may be blatant time thieves or simply too small to warrant the type of services an advisor offers. Deadwood, these clients can drag down a practice.

This is when segmentation of the client base comes in. But although advisors may recognize the value of sifting through their client rosters and ranking clients according to desired variables — such as investible assets and referral generation — they may be reluctant to take the next step: sending the bottom-feeders packing.

The reason? As anyone who has gone through a romantic breakup can attest, rejection is awkward for both parties and is something to be avoided at all costs. “It’s an emotional issue,” says Julie Littlechild, president of Advisor Impact Inc. in Toronto.
“Advisors feel they are doing something bad to their clients by ‘firing’ them.”

But dumping clients does not have to be completely unpleasant for everyone involved, insiders note. Once an advisor is certain that culling is necessary, there are ways to make the process as painless as possible:

> Be aware of any underlying policies.
According to Littlechild, some firms outline the steps to take when transferring clients to another advisor — if that is the preferred solution. This can take the pressure off an advisor, she says: “Some may have a customer-referral centre to which an advisor can send the client.”

> Give yourself adequate time. Joanne Ferguson, a partner with Advisor Pathways, a consulting firm in Stratford, Ont., says advisors should give themselves at least six months to go through the segmentation process. She suggests staggering the contacting of fired clients over a period of months. Appealing to clients in waves — five a week, for example — prevents burnout, she says: “I find many teams get overwhelmed because they’ve sent all these letters out at once, and they can’t follow up quickly enough.”

> Provide options. Give your rejected clients choices. They can accept a lower level of service (you can take a lesson from the banks and dress these levels up with monikers, such as “platinum” and “gold”) or go to another advisor or firm. Rather than simply providing a contact name or two, offer to pass their names along to another reputable advisor. And make sure that the new advisor fits the client’s style of investing, says Ferguson. “It’s really important to find an advisor who is a good match,” she says.

> Use multiple methods of communication.
Don’t just send out a letter and expect it to explain everything, stresses George Torok, executive coach and consultant in Burlington, Ont. “That can be cold,” he says.
Because the industry is based on relationships, it is key to have a personal touch. A phone call explaining that your business is moving in a different direction, followed by a letter providing more details, can soften the blow for confused or hurt clients, he says.

> Be prepared to swallow the transfer fee. An advisor can’t expect clients to pay transfer fees when initiating a move to another advisor, says Littlechild. It’s possible, however, for an advisor to “sell” smaller clients to a junior associate for the cost of the fees, she adds.

> Leave your door open. A client’s situation can change — through an inheritance, for example — so it is critical that the relationship ends amicably. Although it’s natural for a client to feel rejected, it is important that advisors stress the business sense of this move and avoid making it personal, says Torok.

> Know what to do with a george costanza.
The client who simply acts as if nothing has changed, like the Seinfeld character who continued to show up for a job from which he’d been fired, is more prevalent than you might think. “People won’t resist by saying, ‘No, I don’t want to leave’,” says Dan Richards, a principal with Strategic Imperatives Ltd. a Toronto-based investment industry consulting firm. “It will be passive resistance because they won’t find another advisor.” That’s when an advisor has to be proactive, he says: “Set a deadline and offer to help.” In extreme cases, it may even be necessary to have a potential replacement advisor call the client directly.