Sometime in the early eighties I first encountered an interpretation of the 80-20 rule that I now believe to be nearly fatal to an individual business and possibly the cause of major damage to the industry itself.

The 80-20 rule, as I'm sure you know, simply says: 80 percent of an advisor's business comes from 20 percent of his or her book.

But the interpretation went like this: Since much more than 20 percent of our time is spent on the 80 percent that produces just 20 percent of our business, then production should go up if we just eliminate the bottom part of our book. Over time, various trainers have recommended this, various firms have institutionalized book pruning, and countless RRs have practiced it on their own.

I began to suspect something was wrong with this interpretation when I started to run into what I called the "bad-year phenomenon.'' In the course of a conversation with an RR, I would find he or she was having a bad year. But this was during the years of the great bull market, and bad years were unusual. In time, when I would encounter the "bad-year phenomenon." I would find myself asking the following questions:

Bill: A few years ago, did you give away a bunch of accounts?

RR: As a matter of fact, I did. For the past couple of years, I've been purging the bottom 20 percent of my book. Every January, the new kids are lined up. I just don't have time to talk to everybody. So I give them away.

Bill: What happened to production?

RR: Well, it initially went up, but for some reason, it's down now.

I'll say more about this connection below.

Personally, I don't think a lot of the ethics of book pruning. If someone confided in you and trusted you, I think your continued care and attention comes with the territory. And as I'll show you, even the smallest accounts--the ones you want to prune--can be highly profitable.

But even if that weren't true, I think it's a fairly low act to dismiss a client simply because they don't do sufficient business. How would you like it if the service department at your car dealership wouldn't deal with you because you didn't have sufficient damage? They'd have to tie you, gag you and bind you to keep you quiet.

Well, what about your client who calls in frequently, but who buys only five units of a bond fund once every two years? That client is your worst nightmare, isn't he? Lots of work. Little return.

No one forced you to open that account. Unless you turn it down from the beginning, that little client is, in my book, entitled to the same first-class treatment that you give Mr. Big.

Now, having said all this, let me pose an even bigger reason:

I cannot prove what I am about to say, but I believe it very strongly. The rise of the discounters, no-loaders and low-loaders exactly parallels the rise of the book pruning movement, and has contributed substantially to the competitive problems you now have.

As individual RRs have neglected or abandoned their small accounts, Fidelity--like the carnivorous plant in Little Shop of Horrors--kept singing "Feed Me, Feed Me!" In thousands of ads, the no- and low-loaders told small investors: "YOUR MONEY IS WELCOME HERE!" Many of the smaller accounts, wooed by this competition, grew up and became big accounts.

And as trillions of dollars pass from the WWII generation to their baby-boomer heirs, many of those accounts will become the "affluent investor'" market that you have been urged to abandon your smaller accounts in favor of:

So far, we've got two really good reasons for keeping all accounts:

1) Abandoning smaller accounts is a crummy thing to do.

2) Feeding your competition creates monsters.

These should be sufficient reasons NEVER to give up a client, but in case these don't bite, I have a couple of other reasons:

I owe this insight to my friend, Bill Tennison.

Some years ago, I asked all the seven-figure producers I knew to tell me their experience with the 80-20 rule, because there was something about it I still didn't understand.

One day, I asked Bill T.:

Bill G.: Tell me, Bill, does the 80-20 rule work for you?

Bill T.: Absolutely. In fact, for me it's more like 90-10. But I never, ever throw away a client because I never know where next year's top 20 percent is coming from. Bingo! I had it. This was the complete explanation for the "bad-year phenomenon'' I had wrestled with.

Consider the source of next year's top 20 percent:

1. This year's top 20 percent. You can absolutely count on some repeaters.
2. Referrals from this year's top 20 percent.
3. New clients from prospecting campaigns.
4. Bottom 80 percent clients who either had money stashed somewhere or got more.
5. Referrals from bottom 80 percent.