12 Warning Signs that a Client is a Bad Fit

By Bryce Sanders

January 2022

It’s extremely difficult to grow your practice if you focus on those you won’t do business with. But there are exceptions to the rule.

I’m of the belief you don’t need to like all your clients. Consider the following scenario: Someone comes to you. You don’t like their personality. They have an incredibly large amount of money. The business they want to do is completely legitimate. The fees would be high, and they are agreeable to paying them. This person will be a major account. Are you seriously going to turn them away because you don’t like them?

But there are certain types of clients you should think twice about accepting, refer to another advisor or actually avoid. Let’s look at some of them.

1. They do a totally different kind of business.

You have a plain-vanilla type of business. You utilize financial planning and manage money. You trade stocks. Their interest is trading commodities or using advanced option trading strategies. You have no experience in these areas, although you could go out and get your commodities license.

The rationale:This type of investing requires a level of expertise you don’t possess.

Instead:Refer this potential client to someone in the office skilled in the relevant area. Hopefully, you split the revenue for the first year or two.

2. They speak a foreign language (and little English).

You aren’t being prejudiced. This is a very practical problem: You don’t understand what they are saying, and vice versa. Communication is a serious problem. When the client signs documents, it’s difficult to explain them, unless they are available in their language.

The rationale:As an advisor, you deal with complex concepts such as buying on margin and short selling. It’s not difficult to imagine a problem developing and the client saying you didn’t explain the consequences properly.

Instead:They need an advisor in the firm fluent in their language. Someone has that niche market. Perhaps you can share in the revenue.

3. There is friction between you.

A New York City advisor remarked, “If you don’t have a good relationship with your brother-in-law, it’s unlikely to improve when they become a client.” This can happen when you marry into a family and some members don’t like you because they think their spouse could have chosen someone better than you.

The rationale:They are looking for something to go wrong. It’s an adversarial relationship.

Instead:You likely need to accept the account anyway. You can’t turn them away. Look for investments with few moving parts that perform as advertised. CDs and Treasury bills are good examples. Yes, they are boring, but consider the consequences.

4. They are from certain foreign countries.

This may not be a problem, but you need to do some research first. The first question will be “Does your firm allow accounts for non-U.S. residents?” Because of the Patriot Act, you need to learn if their country is on the allowed list. Generally speaking, they don’t want countries that are thought to sponsor terrorism to get the benefits of our financial system. Lots of documentation will be involved.

The rationale:You want to know for certain your firm will allow this foreign national to open an account before you get the ball rolling.

Instead:Shortly after this prospect sits down, bring your compliance manager into the room.

5. They want to set the rules.

They don’t want to use limit orders, preferring you to “watch their stock” for them. They want to shift responsibility to you for factors outside your control.

The rationale:You know that all trades must be able to be reduced to writing. You cannot take discretion unless the client has signed lots of papers granting authority.

Instead:This is a “how we do business” conversation. They need to follow the rules.

6. You suspect that something illegal is going on.

Point No. 5 touched on money laundering. Maybe they have large amounts of cash that need to be deposited, which your firm doesn’t do (although the bank side might).

The rationale:Although you might see the potential for high fees based on purchases and sales, you are facilitating their activity, which might be illegal.

Instead:You can’t open the account today. Can they come back tomorrow? You need to bring a couple of other people into the conversation. You tell your compliance manager immediately. It’s unlikely they will return.

7. They don’t want to follow the rules.

They might not sign their spouse’s name in front of you, but they go to the restroom and suddenly the documents are completed. You are gathering financial information and you can tell they are just making it up. If they are already a client, they might have done trades, buying, and selling within the T+3 time period. They don’t want to pay for the initial trade, rationalizing that they sold out, so it’s not necessary.

The rationale:They aren’t taking responsibility. If something goes wrong, you feel they will vanish, leaving you holding the bag.

Instead:Emphasize the responsibility they are accepting when they sign a document, attesting that everything about their signature is true. Bring your compliance manager into the conversation.

8. They are scary.

I’ve met people fitting this description. Everything is correct and proper, yet you feel if something went wrong, you would be harmed physically.

The rationale:The consequences of something going wrong far outweigh the benefits you would derive from the relationship. You would be a nervous wreck.

Instead:There may be another advisor who is better at working with scary people. Talk with your manager.

9. They are in the middle of a divorce.

It’s not unusual for one party in a divorce to want to set up their banking and investment account arrangements at a totally different firm. In this case, you get both parties in a joint account relationship! Neither trusts the other. And it’s likely to double work, since everything needs to be authorized.

The rationale:You are concerned you could be caught in the middle of someone else’s divorce proceeding or unwittingly helping someone hide assets.

Instead:Someone in your office likely has a financial credential focusing on divorce. This should be their account.

10. They have sued their previous advisor.

This came up early in the conversation. They won a judgment. For obvious reasons, they wanted to find a new advisor at another firm.

The rationale:Everyone has the right to financial advice, but you are concerned that lightning might strike twice.

Instead:Since you are an honest, ethical advisor, you might accept this account. You want to document everything.

11. It sounds too good to be true.

They are opening a small account initially, but millions of dollars will be coming in. They have lots of friends they will be sending in your direction. They just met you, yet they treat you like an old friend.

The rationale:This overlaps with point No. 7. You suspect illegal activity; it just hasn’t happened yet.

Instead:It might be difficult to refuse the account, but bring your compliance manager into the conversation.

12. They want you to provide written references that they have a certain amount with the firm.

You can see how this could be part of a fraud. They deposit substantial assets, yet want a letter on firm stationery, indicating they have assets in this amount on deposit. Of course, the assets might vanish tomorrow.

The rationale:Apparently the account statement isn’t sufficient. Why not? That’s a red flag. The letter you provide might be used in connection with getting a loan elsewhere. The letter might have the date changed over and over. Your name is connected to whatever is going on.

Instead:Your firm doesn’t give out letters like that. The account statement is the official document. They can talk with your compliance manager if they want to take their request further.

Generally speaking, you want to open new accounts and gather new assets. You want to ring the cash register. But there are red flags.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.

The original version of this story was published onThinkAdvisor.