Experienced advisors know that client acquisition and client retention are different ballgames. Some are apt to think the former is tougher, but in reality, client retention isn’t necessarily easy and it’s arguably more important.
In reality, investment management acumen, or lack thereof, isn’t the biggest reason clients reduce or eliminate relationships with an advisor. Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. One way of looking at that is that clients are focused on more than just returns. That can be a positive, but it doesn’t imply clients aren’t focused on financial issues. They are.
Translation: portfolio performance matters, but it’s not the end all and be all of client retention. That’s something to keep in mind because maintain client relationships typically doesn’t garner the attention of generating new business or losing a client.
Why Clients Stay
Good news: there are clues that reveal clients’ motivations for sticking with an advisor. Morningstar recently polled 620 investors that work with financial professional to get a sense of why they continue working with their advisors.
Thirty-seven percent said they do so because they’re not comfortable managing their own portfolios while 22% said they stick with their advisors due to the quality of advice received. Another 16% said they enjoy the behavioral coaching advisors offer. Returns were mentioned by just 12% of those queried.
“Although returns showed up, they didn’t account for enough of clients’ rationale to be the sole focus of advisors’ efforts to maintain clients. In fact, 59% of the time, clients are keeping their advisors for emotional reasons instead of financial ones,” notes Morningstar’s Danielle Labotka.
Some of the above points indicate there are elements of coaching and talk therapy in being an advisor and while clients typically don’t use those terms, those are “extra services” that can be beneficial when it comes to client retention.
“Clients want to feel confident in the decisions they make, but they may not ask directly for the behavioral coaching they need to get there,” adds Labotka. “Fortunately, advisors can be proactive about providing the behavioral support clients need to feel good about their choices. A good place to start is by acting as a financial educator to clients and helping them prepare for times of stress, when making good decisions can be even harder than normal.”
Communication, Trust Matter
It’s not a stretch to say the advisor/client relationship is akin to a personal relationship – friendship, marriage, etc. – in that communication and trust are meaningful.
Often times, clients that are most effusive in praising their advisors cite communication as one of the reasons for their satisfaction. Some laud their advisor’s ability to effectively articulate the how, what and why of an investment. As for establishing, that should be intuitive and an advisor is nothing without it.
“Clients are looking for an advisor they feel comfortable handing these issues off to, so it’s important to garner each client’s trust on that front,” concludes Labotka. “Our previous research indicates trust can be built on the foundation of a strong relationship in which an advisor cares about the client’s future, acts in line with the client’s best interest, and expresses similar values.”