Why I reject potential clients… and some important lessons

tailored advice

I say “no” more often than I say “yes”. That is, I decline or defer the opportunity to work with more people than I agree to work with because, ultimately, I think it’s in their best interest. Not everyone is ready for tailored financial advice for lots of reasons as I discuss below.

Products are easy to sell, tailored advice is not

It’s very easy to buy a financial advice ‘product’ – for example, many businesses market ‘property investment plans’. But it’s much harder to buy tailored advice. A product has a clear deliverable e.g. here’s an example of a property plan. You know exactly what you will receive and what the advice is likely to look like.

However, with tailored advice, the deliverable is less certain. Because until I do the work (i.e. formulate the strategy), I don’t know what the advice will look like. Maybe it involves super, shares, property or a combination of all three? I might have a hunch, but I won’t know for sure – because that’s what you are paying me for. That is, to:

  • not have a premeditated idea of what your strategy should or shouldn’t include (these often exist due to a vested interest); and
  • to clarify something that is currently unclear e.g. what is the best strategy to fund retirement. If you or I already knew the answer to this question, I wouldn’t need to do any work.

However, selling a product is scalable and some businesses do very well out of it. A product is a systemised way of generating financial advice. The business doesn’t need to hire experienced advisors – as the ‘system’ will do all the work. Whereas there is only one Stuart Wemyss (thankfully, I hear some people think). So, my advice is not scalable. But that’s fine because that’s what my clients are paying me for – my experience and professional advice specifically tailored for their situation.

Financial ‘products’ often offer limited value because they aren’t completely tailored to meet a specific client’s situation. I can design a great property portfolio and prepare some cash flow projections but that doesn’t mean it will suit everyone. How does the property integrate with your other assets such as super? What about debt management (you don’t want to take a lot of debt into retirement)? What about existing assets and cash flow?

If you are seeking advice from a professional, its important to ask yourself whether you are buying a product or tailored advice. Buying tailored advice means you need to put faith and trust in the person that is advising you – and that can be a difficult decision. Just because it’s easier for you to buy (and someone to sell) a product, doesn’t mean it’s worthwhile.

But not everyone is ready for tailored advice. Here is a list of reasons that I decline or defer to work with prospective clients.

Lack of cash flow surplus

A prospective client must have surplus cash flow to invest. It is normally impossible to develop a retirement strategy without it.

Surplus cash flow refers to the situation where your expenses and commitments are less than your income i.e. you have monies left over every fortnight or month. If you are spending all your income, there is not much I can do for you as a financial advisor (other than counsel you to reduce your spending).

Generally, a prospective client needs to have a minimum surplus cash of over $1,000 per month to justify paying for advice.

Building wealth when you have a young family is very challenging because your income is typically unusually low (either or both parents are not working as much) and your expenses are unusually high (childcare is often more expensive than private school fees!). I discussed this challenge in this video previously. If you are in this situation, you might be better off waiting until all your children are in primary school before you consider developing a plan.

Too much debt

Some people have a lot of debt and it is obvious to me that they should be directing 100% of their surplus cash flow towards repaying and reducing debt – not forever – but at least for now. In this situation, I would typically suggest that person focus on debt reduction and come back in 2 to 3 years’ time. This will demonstrate that they have the financial discipline to consistently direct surplus cash flow towards improving their financial position.

Too much uncertainty

Some level of uncertainty is almost always present, and we must plan around it. However, sometimes clients are contemplating substantial changes such as moving overseas, change in income or occupation, potential redundancy and so on.

When faced with uncertainty, I typically tell clients to wait – even if it’s one or two years – as the uncertainty will usually disappear. There’s no point investing time and money now to develop a plan if your situation will materially change in 12 months’ time and we might have to redo the plan. I appreciate that having a plan creates more clarity and therefore more certainty. But that’s more of an emotional driver than a practical one. My job is to put emotion to the side and advise you on the best practical path.

Borrowing capacity

Not all financial strategies involve borrowing to invest (in shares or property). However, for people in their early 50’s or younger, many strategies will involve some level of gearing (borrowings). So, if you currently don’t have any borrowing capacity (or I don’t think it’s prudent for you to borrow now), then perhaps its best to wait until you do. That is assuming we expect your borrowing capacity to improve in the coming months or years.

Not suited or aligned to work together (e.g. to property or strategy).

Firstly, I have a very clear and disciplined investment methodology and philosophy that I always follow (as outlined in Investopoly). I don’t believe we need to speculate with our money. Instead, we should only invest if there’s an overwhelming amount of evidence that demonstrates we’ll be successful (that’s called evidence-based investing). As such, my clients and I must be aligned with these methodologies and philosophies. There’s no point working with a client that holds philosophically competing views.

Secondly, I must be totally confident that I can add value – way more than what I might charge in fees. For example, if a prospective client is a property developer (or wants to get into property developing), I tell them I’m not the best advisor for them. They should find someone that can add value to that process – someone that has more experience in property development than I do. Similarly, if I feel the person is already on the right track or there’s limited ability for me to add value, I will not take them on as a client.

Quality advise is not scalable

I believe that quality advice is not scalable because it requires part science and part art. The science portion is the financial analysis, tax knowledge, proven investment strategy and so on. In a way, that’s the easy bit and is scalable. The art portion is derived from many years of experience – knowing what will work and won’t, problems with implementation, likely changes in the future we need to accommodate and so on. Experience is personal and difficult to scale or replicate. I believe the most valuable thing I offer my clients is my 20 years of experience – they will learn from all the mistakes and successes that I have seen professionally and made personally. That is the art portion.