Robert Vingi and Howard Edwards wanted the best for their clients. So they showed one-third of them the door.
The two, along with team member David McCallum, wanted to increase assets, not just the number of clients.
They were well-versed in the "80/20" rule - the maxim that says that 20% of an advisor's clients bring in 80% of the business. The solution-focusing on the right 20%-seemed obvious, although it required a light touch.
"It's not easy, it takes practice and it never gets comfortable," says Vingi, senior financial advisor and managing director at Wells Fargo. "But it's doable."
To make it work meant not just being good advisors to their clients - but good practice managers to their firm. "The top 20% are subsidizing the other 80% and that's not fair to the 20%," says Vingi, who with Edwards and McCallum are based out of Charleston, SC. "What we want to do is spend closer to 100% of our time with our best clients and for all our clients to be 'best clients.'"
Taking A Stand
While few advisors would disagree with that sentiment, many find it difficult to implement a plan that decreases assets under management.
First, there's the common worry that a client might have a "life event," such as a big inheritance. Sometimes, sheer inertia is the culprit for keeping clients that no longer fit.
It's rare for even seasoned advisors to actually let go of a client who is not, in some way, an actual problem. But to the Vingi and Edwards, cutting ties is a simple business proposition. Yes, they may enjoy working with a client. But if they're not a good match, the two believe the relationship doesn't work for either side.
Listening to their strategy sometimes sounds like eavesdropping in a baseball locker room.
The two call their plan the 'Triple- A' rule. Clients who don't meet some combination of three attributes - assets, attitude and advocacy - find themselves on the trading block.
For household assets, the minimum threshold is $2 million. And the team specifies that it is looking for funds that can be invested today. Assets that may appear in the future - a business that may one day be sold, for example - are not counted.
Also crucial is an investor that plays ball with the right attitude. In fact, that's often the first point of reference when they sit down to examine a household. To them, that means being a team player: someone who takes their advice, listening to the firm's suggestions rather than constantly challenging them. And clients who find the need to call support staff every day are red flags as well.
Edwards notes that the team pays more than half of the salaries of its support staff and they feel they owe it to their assistants to eliminate those households that need more than their share of time. And while they take their staff's opinion into account, ultimately there's an instinctive response to knowing who may need to go.
The idea boils down to a simple question, says Vingi. "Is this somebody we enjoy working with?" And there's at least one test that's also relatively simple. When told that a certain client is holding on the phone, if he cringes in response, the client fails the attitude test.
The last gauge-advocacy-is a tough one. Of the 262 households the team manages today (down from 376 just since the end of 2012) fewer than 10% are active advocates for the firm, says Vingi.
To be sure, these tests are not written in stone. There are clients who may fail the 'Triple A' test but are allowed to stay anyway.
Each advisor is allowed what Vingi calls 10 "gimmies" - standbys that are given a pass, such as family members or long-standing clients that the team feels is inappropriate to transition. For Edwards, that includes some older clients he has managed for many years.
Plan In Action
Even with their guidelines, putting the plan in action takes discipline. Just after New Year's, the team went through its client list to discuss who needed to be culled.
"We had a re-dose on religion," says Vingi, who is doing $2.2 million in production, up from $200,000 in 1994 when he launched his practice. "We've gotten re-energized."
Still, the conversations that take place with clients who are being transitioned can be difficult. Each discussion is tailored to the specific investor's situation - but for those who just don't meet the $2 million minimum, that's primarily what the team uses to hang its decision. In scenarios where the investor may live in another state, they will suggest that it's in a client's best interest to work with someone geographically closer.
Vingi recently moved an $800,000 account to a replacement in San Francisco. A $600,000 client in Charlotte, N.C. also got moved. There's no question that in such a buoyant market, clients may be more amenable to being moved away. While Edwards says it's unlikely the team would have been as aggressive if the economy had been extremely unstable, they believe that as long as the transition is being done in a controlled manner the decision can be positive for both sides.
Both say that clients aren't totally dropped. Instead, the team locates another rep within Wells Fargo who may be a better fit. After being vetted by the team, then the new advisor will talk to the investor to explore a possible new relationship.
Edwards received a thank-you note from the first investor he transferred out of the practice. To him, that's a sign that the decision they're making to streamline is right.
As expected, however, not all clients want to move. There are those who need some extra encouraging. One of Edwards' former clients just didn't want to be moved away - requiring Edwards to shift the explanation to their manager, who happened to know the client well, to reinforce the team's decision.
Another former client initially seemed comfortable with being moved, but wanted assurances he could still call the team's staff. When gently told he would have a new support person to contact the client balked - but was transitioned anyway.
Other clients, when told they were potentially being shifted to another advisor, instead moved additional assets to the team to meet the minimum. Edwards and Vingi will describe these situations as going through "rehab." Sometimes it involves a conversation where the investor is actually asked if they'd be willing to pay higher fees if not entrusting the firm with more capital.
Vingi met with one client who had far less than the minimum in active assets, and asked if the investor would move an additional $1 million in fee-based investments to the firm. The team enjoyed working with the client but needed to "rationalize this business proposition," says Vingi. The client called 10 days later and agreed.
Both Vingi and Edwards say it's never completely easy letting go of an account, whether a new one or a long-standing relationship. But in order to pay attention to clients' birthdays or a grandchild's birth, they need to pare down to find the time for the moments that can strengthen a client-advisor connection, and even potentially lead to new business.
"I'm never comfortable releasing an account," says Vingi. "But I've never seen it hurt my revenue because then I can have a two-hour meeting with my best client."
Name: Howard Edwards/Robert Vingi
Bank: Wells Fargo
Location: Charleston, S.C.
2012 production: $3.6 million
2011 production: $3 million
2012 AUM: $772 million
2011 AUM: $653 million
Product mix: Managed money accounts, Equities, Annuities, Insurance
AUM and Production figures are combined for both advisors, but does not include other team members.