Taking a pass on troublesome clients

It’s always hard to say no to a potential income stream, but a bad client can cause endless strain. It’s not easy to tell which prospects are going to pose problems — but it’s definitely easier to say no to a prospect than to terminate a client later. Here are a few would-be clients I took a pass on ... and a few I signed up but probably shouldn’t have.

One was the sister of an existing client. “Please, please take my sister, Caroline, we’ve both inherited money but she has no idea what to do with her share.” Caroline lives on the West Coast (I’m outside Boston), and she could barely find time to talk with me by phone about my management proposal. I take her on but then can’t get her to respond to emails or calls.

I think the first email she initiates to me was just after the 2008 crash: “Sell everything while I still have some value left.” Normally that would trigger a conversation about not doing panic selling, but — knowing that conversation is impossible — I promptly liquidate her account and have the proceeds transferred to her bank where, I imagine, they sit and miss out on the post-crash rebound.

One couple was close friends of an existing client. “We hear great things about you, we really want to work with you. When can we meet? One of us works a day shift and one works nights and we’re Orthodox Jews so Saturdays are out too, and one of us teaches morning Sunday school ... so how about Sunday afternoon?” I was sympathetic to their constraints, but Sunday afternoons are not work time for me, so I decline.

Darla is a sophisticated young accountant with a growing solo practice. Our initial meetings are good; she seems interesting to work with. I send her my standard management contract and she returns it marked up with changes that she asks me to initial. The changes aren’t really troublesome, mostly they suggest an excess of caution on her part, and maybe a lack of trust. She has a bunch of legacy positions that she wants to hold in the account. I hear warning bells but it’s early in my career and I’m eager to add clients. I agree, with the understanding (confirmed in writing, of course) that I will not be responsible for managing those holdings. What could go wrong? 

Over time she gives me increasingly frequent instructions about trading those positions and adding new ones. Eventually I am doing more trading on her part of the account than on mine, and her holdings are complicating my portfolio allocation and undercutting overall performance. Finally, I suggest that we’re not a good fit, she should just manage the whole thing herself and save the management fee. She decides this is a good idea.

An older client, Stephan, knows a lot about investing and is fun to talk with. He seems very happy with my management but gradually wants to layer on his own intuitions about the markets. “I’m not feeling good about emerging markets stocks, the U.S. feels more reliable right now — sell all my EM holdings and reinvest in U.S.” I try to convince him that emerging markets securities are only a small sliver of his portfolios and are adding diversification (and, in some years, contributing significant gains). No success. Next round: “I’m not feeling good about international stocks, Europe feels shaky compared to the U.S.” I remind him of the correlation between risk and return; we don’t want to hold a full hand of low-risk assets. Again, no success. 

By the time he decides that smaller-cap stocks feel too risky (they do have higher volatility, but historically it’s rewarded by higher returns), he has effectively taken over management himself. I’m not adding much value to his portfolio. I start wondering whether he will leave on his own or will stay until I to fire him. He answers the question by quitting. Coincidentally, emerging market stocks outperform the following year. I do not point this out to him.

Finally, Tanya, referred to me by my friend Alan after they get married. Tanya’s first husband died had unexpectedly in middle age. I know from our first meeting that she is very anxious about money, though I think she will have enough for retirement, particularly if she goes back to work and stops buying expensive cars, both of which she is reluctant to do. We spend a lot of time talking about her risk tolerance and setting a portfolio allocation that should give her enough investment growth without unbearable risk. 

Usually even my most anxious clients ultimately settle in, deciding they’re comfortable with my management and don’t have to worry so much. Not Tanya. About once a quarter she calls to see if we should change her allocation. We have roughly the same conversation: She’s anxious about the markets, maybe she should be more conservative; on the other hand, she’s also worried about retirement and longevity, maybe she should be more aggressive. I tell her that to me her ambivalence is a sign that we’ve got the right mix for her, and that the whole idea of having a long-term allocation strategy is so we don’t have to think continually about changing the mix. She is persuaded — briefly, but only until the next phone call. When she calls, I find myself thinking, “Here we go again.”

After a few years of this, I tell Tanya that I haven’t been successful with her since I haven’t reduced her anxiety, and that I would like her to try another adviser instead of staying suck in the same rut with me. I offer to refer her to other managers who might be a better fit, including an all-woman planning firm that I think she might like. Eventually she finds someone on her own. She is not happy leaving, but I feel relieved.

[More: Dealing with challenging clients]

Michael Broad is a financial planner and investment advisor in Newton, Massachusetts. Got a good client story or problem you’d like to see in a future column? Email Michael Broad.