Practice Management

A key ingredient in a successful practice, loyalty can be difficult to measure

By Dwarka Lakhan |

Client loyalty is critical to the success of a financial advisory practice. A loyal client base means less turnover, and it is much easier and less expensive to retain loyal clients than to acquire new ones.

"Loyal clients are with you for the long haul typically because you have earned their trust," says Caroline Grimont, vice president of marketing with Excel Funds Management Inc. in Mississauga, Ont. "They are satisfied with what you do for them."

Grimont says it takes time to build loyalty, which involves more than simply meeting client expectations.

"You must show that you care," she says. "Listen to them when they tell you what you are doing wrong and take action on their suggestions for improvement."

So, how do you know clients are loyal? It is not a "cut and dried" process, Grimont says, because it involves a lot of subjectivity.

The following five questions can help to determine your clients' loyalty:

1. How long has the client been with you?
This may seem like an obvious question, but clients who have been with you for a long time have probably remained with you over several market cycles, meaning that they are comfortable working with you.

For these clients, Grimont says, you can assume you have "done the right things to retain them."

2. Is this client working only with you?
A loyal client who trusts you would likely have all their assets with you. If this is not the case, then the client could have divided loyalty. Even so, those assets should be part of the client's financial plan that you have prepared.

"You risk losing clients who have assets with other advisors," Grimont says.

3. Do you manage the assets of the client's family members?
Clients' children, parents and extended family are a good source of assets. Clients who refer you to their relatives have confidence and trust in your ability to manage their financial affairs.

"This is usually a good indicator of loyalty," Grimont says.

And family referrals can help ensure you not only retain clients for life but also retain their assets when their wealth is passed to the next generation. 

4. Do clients provide you with referrals?
Many advisors depend primarily on referrals to build their businesses. Clients who refer you to their friends and colleagues are not only demonstrating their loyalty but also are spreading the word about how good you are, Grimont says. "They are risking their reputation to recommend you."

5. Do clients take your recommendations?
In an environment in which information is easily accessible, clients may not always listen to your advice and adhere to your recommendations. Some might seek second opinions from other advisors, which is an indication that they might have one foot out the door.

"Clients have a right to ask questions," Grimont says. But loyal clients are more apt to "trust that you are looking out for their best interests." That trust usually comes from the client's experience in working with you.