Kitces & Carl Ep 82: Balancing The Desire To Serve With The Financial Demands Of Growth

Kitces & Carl Ep 82: Balancing The Desire To Serve With The Financial Demands Of Growth

When an advisor first opens their own firm, they are often eager to take on any willing client in order to generate enough revenue to ‘keep the lights on’. But after getting through the first few years of business, many find that the time they spend working with early clients hinders their ability to bring on new, more profitable, clients. This leaves the advisor with the option of hiring additional staff members to handle the growing client base (and perhaps taking on debt in the process) or of terminating the relationship with less profitable clients… both of which involve very difficult decisions for the advisor.

In our 82nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can ‘upgrade’ less profitable clients by referring them to other advisors, why they might need to overcome the scripts in their heads to achieve better growth, and how they can use different models to help underserved populations.

As a starting point, it’s important for advisors to recognize that, given the limited number of hours in the day, they cannot serve every potential client who might need help. While serving others is often one of the primary motivations of advisors, this must be balanced with the need to run a sustainable business (because if their firm goes out of business, the advisor wouldn’t be able to serve any clients!).

For advisors who want to continue serving at least some of their less profitable clients, one option is to set a fixed number of clients in this category. Another option is to set aside a certain number of hours each week to work with clients on a pro bono or low-cost basis. These strategies can help the advisor continue serving clients in need while also keeping enough time in their schedule to serve more profitable clients (and to keep themselves in business).

Clients who the advisor can no longer serve profitably can be ‘upgraded’ to a new advisor who can meet their needs profitably. While it can sometimes be difficult for advisors to move on from long-time clients (particularly those who were willing to work with the advisor when they were first starting out), it is important to recognize that these clients might actually get better service when referred out to a different advisor who specializes in their particular needs and who has the capacity to give them more attention.

Another option for advisors who want to grow their firm but have hit a capacity ‘wall’ is to consider hiring additional staff to help service their growing client base. In cases where the advisor’s current revenue might not initially support new hires, taking out a loan can be a viable option to cover the costs. And while taking on debt to pay employees could trigger an automatic script in the advisor’s mind that they are making a bad financial move, actually running the numbers can confirm whether this option (which would potentially allow the firm to bring in new and more-profitable clients) would result in greater overall profits in the long run!

Ultimately, the key point is that while the desire to help others is one of the primary motivating factors for many financial advisors, time constraints and the need to run a sustainable business often mean that advisors can’t always serve every potential client. But this doesn’t mean that advisors have to ‘fire’ every unprofitable client; instead, advisors can choose to continue serving some of these clients while referring others to advisors who might be a better fit, or else consider options that allow them to expand their capacity (such as hiring additional staff). Which can help advisors grow their firm profitably while at the same time ensuring that all of their clients receive the level of service they deserve!

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