|
Many
financial advisers invest time and effort into gathering new accounts
and new assets into their practice.
Often
the hard work it took to bring in new relationships can be undone
when existing relationships choose to leave – often without warning.
Why do ‘good’ clients leave? What are the warning signs? What proactive
strategies can you implement to rescue the situation?
Interviews
and surveys of financial advisers in the US told two different stories.
When surveyed by mail, 54 per cent of financial advisers responding
indicated a large client relationship transferred out or became
inactive – barely more than half the surveyed population.
When
interviewed by telephone (the flow of information is significantly
greater) 83 per cent of financial advisers interviewed indicated
they had lost a large relationship or it had become inactive. You
might expect financial advisers newer to the industry would experience
the greatest loss – Most of those interviewed were established,
successful financial advisers.
What
causes the client to leave? Interviews and surveys indicate the
most commonly given reason is performance. Clients were either dissatisfied
with the results or perceived they could get better results elsewhere.
The
second reason given was service. Clients equate service with attention
and frequency of contact. A standard on the retail client side of
Wall Street has been: “Clients perceive they are receiving good
service if they are contacted six or more times a year.” Less contact
is viewed as less service.
The
third most frequent reason why clients left was fees. They either
felt fees were excessive relative to alternatives (such as index
funds) or they were paying fees and underperforming.
The
final reason financial advisers gave was “following their previous
IFA”. When financial advisers join another firm it tests the strength
of the client’s bonds. The question is are they closely bound to
the financial adviser (and follow to the next firm) or do they see
themselves as clients of the firm instead?
Warning
signs
Before
clients decide to leave they often give signals indicating the relationship
is at risk. When interviewed financial advisers listed three warnings
as most common:
- Not
returning calls – Like a personal relationship, dialogue is important.
Clients are often nonconfrontational. They are unhappy and they
do not want to talk to you while they determine their next step.
This was the most common reason given;
- Ignoring
advice – you make suggestions and they do not act on the recommendations.
The client is considering you (and the firm) as a place to ‘hold
their securities’ against receiving and acting on advice. This
is a passive adversarial relationship.
- Complaining
– Some clients call when their statement arrives and complain
about performance. Others review the statement line by line and
question fees. This is an active adversarial relationship.
When
interviewed financial advisers provided other observations further
refining the signs listed above: often the financial adviser has
a primary contact person in a relationship. In couples the relationship
may be with both parties. When a third party is introduced (older
clients who defer decisions to an adult child) the relationship
is at serious risk. Trust has broken down and they are choosing
another person to advise them.
It
is often difficult to retain the next generation. The adviser may
have an excellent relationship with the client however the adult
children (who may ultimately inherit) may handle their own investments
or establish a relationship elsewhere. When the children inherit
the account they do not see the value of the parent’s advisory relationship.
Service
can win over price if the client sees value. The investment process
plays an important role. If the clients understand the importance
of asset allocation and risk tolerance they probably understand
why they own specific investments even if they are not performing
as well as anticipated.
Performance
relative to the market is also a factor. Clients often see issues
in extremes: Making money or not losing money. They need to understand
the importance of underperforming or outperforming benchmark indices
– the concept of relative performance.
Sometimes
clients will say: “I do not want to be called.” Probe. Do not take
this literally. In the right relationship no one “doesn’t want to
be called”.
Wanting
something
Some
clients feel their adviser “only calls when he or she wants to sell
them something”. Other clients may respond to some methods of communication
but not others.
Consider
two rules: First, people need to be ‘touched’ at least six times
before they become aware of the message, second people receive information
through multiple channels – some work better than others.
Begin
by initiating non-sales communication. Contact clients and discuss
recent market or economic events in terms of what it affects – their
portfolio or their ultimate goals. Movements in oil prices or currencies
– what does that mean to them? Send more educational material to
broaden their understanding. Call and explain the material you sent.
Consider
the channels available to reach the client. Telephone calls and
letters are most obvious. How about emails, faxes and newsletters?
Have interesting articles appeared in the paper? Clip the original
and send it out. When the client sees the clipping the unspoken
message is: “Of all the people he could send this to, he chose me.”
Do
you do seminars? Send them an invitation. Can you speak before their
community organisation? Invite them to periodic face-to-face meetings.
The effort you put into communication also shows your commitment
to the relationship.
You
sense the relationship is at risk. The client does not follow advice.
Things may be quiet because the client is non-confrontational. Take
the initiative.
Invite
the client (and spouse if a joint relationship) out to dinner. Choose
a pleasant, neutral location. When the time is right introduce business
into the conversation: “Things have not been good lately.”
Listen
carefully. Do not interrupt, do not explain. Let them get everything
off their chest. Relate to the problem and draw them out. Make sure
they get speak about everything on their mind. Wait your turn.
Ask
the client “What can we do to go forward?” Listen to their thoughts
and make your own suggestions based on what you learned earlier.
It is very difficult to say “No – I will not stay”, or give a reason
to leave when sitting face-to-face with an understanding, sincere
person.
Meeting
time
Frequently
a financial adviser may have a primary contact person in a relationship.
The other person (often a spouse) may feel unimportant. Address
the issue.
Plan
a meeting and invite both parties. Choose a comfortable, neutral
location. Set the stage for the discussion ahead of time. “We have
never met (to the other party). We need to meet. Maybe I am not
the right adviser.”
At
the meeting restate the reason for the meeting and pay equal attention
to each party. Establish your credentials. Emphasise making decisions
based on knowledge, not emotion. “I will give you enough information
to make knowledgeable decisions.”
You
are establishing yourself as an expert and demonstrating your respect
for all parties in the relationship.
Clients
leave for a variety of reasons, sometimes because they perceive
the grass is greener on the other side. Time and experience may
prove otherwise however pride may keep them from returning to you.
Contact
lost relationships periodically. “Are they alright?” It emphasises
you genuinely care for them as people, not just as clients on the
books. They may be willing to return if you meet them halfway. You
have taken the first step and given them the opportunity to come
back. Many ‘at risk’ relationships can be saved if addressed ahead
of time. Often the client simply wants to know whether he or she
is an important client to the financial adviser.
MAIN
POINTS
- The
most common reason for clients to leave is performance. Clients
were either dissatisfied with their performance results or perceived
they could get better results elsewhere
-
Clients equate service with attention and frequency of contact.
Less contact is viewed as less service
- Another
most frequent reason clients leave was fees. They either felt
fees were excessive relative to alternatives, such as Index funds,
or they were paying fees and underperforming
-
Many “at risk” relationships can be saved if addressed ahead of
time. Often the client simply wants to know whether he or she
is an important client to the financial adviser
|
