Warning Signs

Advice on terminating a client relationship.

By Theresa Conti

We all know that some clients just should not be our clients. As professional service firms, there are reasons why we should terminate a relationship with a client. Nonetheless, it is always a difficult decision to make. When we bring in a new client, we always hope that they will be a great client and pay their bills on time, listen to our advice and appreciate the services that we provide. But what happens when those hopes are not met? Let’s look at each of these three areas in the context of figuring out when would be the correct time to terminate that relationship.


Most TPA firms charge a reasonable fee for services. In fact, I often feel that we are one of the retirement plan service providers that in some cases don’t charge enough for the services we provide. I always worry when we get a new client and right off the bat, we have to follow up to receive payment on our invoices. To me that is a first sign that they might be a difficult client and collections may become a problem.

Our service agreement (and yours too, I’m sure) says that we can take fees from the plan if the client doesn’t pay. That is difficult, however, and typically we don’t have the authority to take those payments—so we spend a lot of time figuring out how to get paid. We often talk about how it is the same clients each quarter that don’t pay the invoices timely. Should those be the clients we terminate? Are they causing us more work following up for payment (and probably following up for other information we need)? Note that this argument just pertains to not paying invoices; it doesn’t even consider whether the client is really profitable if we have to do all this extra work just to collect payment for our services.


To me, a bigger issue is our exposure for clients who do not follow our advice. We always make every effort to ensure that a client understands what their responsibilities are in relation to their retirement plan. We all know that in our complicated business, a client cannot know everything, nor do we want them to! But when they ask us for advice about something or we tell them that something needs to be corrected, we should also expect that they trust us and will correct what is wrong. What do we do if they don’t correct what is wrong as per our advice? We have all had those clients that are top heavy, and they just refuse to deposit the top heavy minimum or have continual late deposits to the plan or any other number of things that can go wrong. What is our responsibility? What type of exposure do we have? I also find myself continually giving clients “time” to correct what went wrong instead of telling them outright that if they don’t correct it by the required timeframe, we can no longer provide service to their plan. This type of client constitutes a risk to our business in many ways. Also, they are the type that is more likely file a lawsuit. Thankfully, I don’t think most of our client concerns get to that point—and if they did, we would probably think that we should have terminated them long beforehand. It is always interesting when I talk to my friends who also run TPA businesses and we compare notes. I got a call from a friend a few weeks ago who told me she was going to terminate a client because they were out of compliance (for many reasons) and the financial advisor was looking to her to refer that client to another TPA. She asked me if I wanted the referral, and my response was “I thought we were friends”! It was difficult because those clients do need service and advice—but we both knew they weren’t going to listen to me either. So how do we handle those? Who do we refer them to, or do we just refuse to refer them and make them figure it out on their own? We are often in the middle because of our relationships with financial advisors, who look to us for help with difficult clients. How do we turn those away, especially when we know they will be a difficult client? 


The final area of concern is when a client doesn’t appreciate the services we provide. This is a hard one to quantify, but there are definitely warning signs of this concern as well. Several years ago, for example, we had a client who was mean and used foul language with one of my employees as she was questioning him about the census information he had provided. She was a “steady” employee and when she came into my office upset and with tears in her eyes, I knew that something was really wrong.


    I ended up calling the client with her to see what the real issue was, and he started using foul language with me. I informed him that if he continued to use that language, I would hang up, that we were a professional firm, and I did not appreciate him talking to me or my employee that way. He proceeded to tell me that this is how everyone talked, and I was making too big of a deal about it. I told him that was not how I did business and I would hang up if he continued to talk to us that way… which he did. I hung up. We found out a few months later that he was forging documents for his employees, and the reason he was upset with us is that we were questioning the census and he knew what he was doing was wrong. He ended up being arrested and charged! So, I think my final piece of advice is to always go with your gut. Trust your instincts. If you think right off the bat that the client will be difficult, create stress for you and your employees, and may not fit your business model, that is the best time to turn them away… before they cost you time and effort for no reward.

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