How Can Advisors Retain More Clients? The Answer Might Surprise You

Kristine McManus, CRPS®
Kristine McManus, CRPS®

12.03.19 in Marketing & Practice Management

Estimated Reading Time: 6 Minutes (1124 words)

Marketing and Project Management

Suppose Jeremy Grantham is (finally) right again, and the market is indeed set for a recession, a downturn, a bear market—your choice what you want to call it. We know this would happen eventually—we’ve enjoyed the longest bull market in history (more than 10 years)—but it had to end at some point.

During the good times, you’ve paid careful attention to clients’ risk tolerances and needs assessments, and you’ve recommended an appropriate portfolio asset allocation. The investment planning side of the equation has been strong, and results have been positive. All proven ways for financial advisors to retain more clients! Or so you assume.

But that’s not all to the story. According to research, your client communication strategy is one of the most important factors in retaining business. And that goes for any market. 

Success in a Down Market

It would be reasonable to think that, having enjoyed the long ride up, your clients would understand when there’s finally signs of a downturn. It would be rational to assume that they wouldn’t blame you for any loss in their portfolio. And it would be logical to think that your clients are loyal to you, no matter what happens in the market.

Unfortunately, it doesn’t always work that way.

As behavioral finance has taught us, investors are neither rational nor reasonable, and investor loyalty (or lack thereof) often surprises advisors. In any sort of market downturn, advisors are well advised to make client retention a priority. In fact, what ultimately drives your success during a recession might be to what degree you can retain more clients.

Top 5 Reasons Clients Leave

Losses in a portfolio are seldom the real reason clients leave an advisor. It may be the proverbial last straw, though, if other underlying issues exist and clients are already dissatisfied.

Most advisors tend to blame portfolio underperformance if they lose a client, and it can be easier to think that way. But if investment losses aren’t the main reason clients fire an advisor, what is? A study done by Financial Advisor magazine revealed the top five reasons clients leave:

  1. The advisor failed to communicate.

  2. The advisor didn’t understand the client’s goals and objectives.

  3. The advisor failed to return phone calls promptly.

  4. Investment performance was poor.

  5. The advisor made claims on which they couldn’t deliver.

When I look at this list, I immediately channel Cool Hand Luke and the classic line, “What we have here is a failure to communicate.” It shocked me at first, but it makes sense. Would you agree that four out of five of these reasons directly relate to communication—with advisors failing to listen or respond well to clients? That’s how I read it. The good news for advisors is that most of these issues can be resolved. The following strategies can help you retain more clients, regardless of market conditions.

Key Elements of an Effective Client Communication Strategy

Set standards. If you haven’t thought through your communication strategies recently, make this topic a priority. Ask yourself: how long does it take you to return a client’s call or respond to an email? Meet with your team to set reasonable response times. You might consider a normal service standard to encompass most tasks, as well as an accelerated standard for volatile conditions or extreme circumstances. Establish protocols to determine when your employees can answer a query and when you need to handle it directly.

Think about how many face-to-face meetings per year your clients want—not how many you intend to hold. Have you asked them? Don’t assume they love sitting down with you on a quarterly basis. Open a dialogue to gain input, and give your clients other options, such as videoconferencing via Skype or Zoom. You might be surprised by the response.

Clarify standards. Setting service standards won’t help if clients aren’t aware of them, so have a plan for how you’ll communicate them. Will you inform clients in meetings, outline them on your website, or incorporate them in a handout? You can (and should) plan to announce your service standards in multiple places. Most people hate uncertainty, so you can gain goodwill up front by setting expectations appropriately.

Update your website. Keeping your website up to date with fresh content and important messages can save you valuable time down the road. When markets drop, advisors often find themselves besieged by phone calls from anxious clients. Wouldn’t it be great if they all knew to go to the website for an update from you instead?

Remember the moments. In the book Cultivating the Middle-Class Millionaire, the researchers state that “most financial advisors fail to contact their affluent clients on non-investment matters . . . we have seen how important this is to being perceived as caring.” Those millionaire clients who were loyal to their advisors were contacted more than twice monthly. That’s 24 times a year on matters unrelated to investments! Most advisors would say they struggle to come anywhere close to that.

Business communications and investment updates are expected and necessary to the business relationship, but they do not move the personal relationship forward. What advisors tell me really moves the dial is often something small and thoughtful that shows they listen and care. It can be the unexpected phone call just to say hi; the thoughtful note or small gift at a high or a low point in someone’s life; the sympathy when someone’s ill, and the joy when there is news to celebrate.

Host events. Client events and workshops are a great way to strengthen client relationships. From the initial invite to the event details to the photos sent in follow-up, these little actions and connections can all help move the relationship forward.

Post to social media. Social media also offers opportunity to help build and maintain relationships, so remember to factor LinkedIn and Facebook in to your communication plan.

Top 5 Reasons Clients Stay

I started this article with the key reasons why clients fire their advisors, but I thought I’d end with the opposite end of the spectrum—what clients value most about their advisor. According to a Vanguard/Spectrem Group 2017 research report, “Advisor Relationships and Changing Advice Requirements,” what matters most to clients includes the following:

  1. Returns phone calls promptly

  2. Returns emails in a timely manner

  3. Proactive in contacting clients

  4. Provides good advice

  5. Portfolio performance

So, the top reasons why clients stay with their advisor also come down to great communication! Whether you want to play on the offense or the defense, having a solid client communication strategy will benefit your practice. And if you create clients who are loyal to you, they’ll likely refer others to you. You might look back and see the market downturn as an opportunity to gather new clients.

This material is for educational purposes only and is not intended to provide specific advice.

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