November 2018 Firm Management Channel

As the actor’s salary continued to increase, Emily’s partners were very happy to expand their business relationship with him. The star was well known throughout the office. They often allowed him to hand out movie premiere tickets and memorabilia as a courtesy to the staff or in lieu of payment and agreed to services with just a handshake. He even accepted a personal referral from one of Emily’s partners despite the lack of qualifications. Emily grew increasingly uncomfortable with how the client relationship was proceeding and expressed her concerns to her partners. However, no one else wanted to ‘rock the boat’ by asking the actor to forego the perks over something as trivial as an engagement letter.

Over time, the actor became more and more demanding. He started asking Emily to book flights, find him hotel rooms and make dinner reservations. Oftentimes, he would angrily complain that she failed to do things he requested in which Emily had no recollection. When Emily decided to accept a job with another firm, she decided to leave the actor client with her former colleagues. Several years after her departure, she read in the newspaper that her former firm was being sued by the actor. The claim cost them a great deal of money, and the news stories about the lawsuit and court proceedings put a black mark on the firm’s reputation.

What did the firm do wrong?

• No engagement letter was ever used
• They provided an array of concierge-type services outside the scope of accounting
• There was no annual client review performed by the firm
• Only one referral was offered when the client needed assistance outside of the firm

Evaluating your clients on a routine basis is good business practice. Over time, a client’s profile and expectations may change, no longer making them a good fit for your firm. Though not an easy task, disengaging from risky clients can be your best option. It may hurt financially in the short run, but in the long run it can save you a great deal of aggravation and avoid a potential professional liability claim. In Emily’s case, she was aware that her client’s profile was changing and that her former firm was not willing or capable of handling such a demanding high net worth individual.

To help you avoid a similar situation, the following is a list of some common high-risk clients, along with some tips on how to mitigate your potential exposure, short of ending the relationship:

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