It is a question that has crossed many advisors’ minds: Why do clients leave their advisors?
According to the Economics of Loyalty, the report from a survey conducted by Advisor Impact Inc. for the Investment Industry Association of Canada, both of Toronto, suggests that there are several answers to that question.
“To some extent the industry has benefited from inertia,” says Julie Littlechild, CEO of Advisor Impact. That inertia may have prevented dissatisfied clients from switching advisors.
“That said,” Littlechild adds, “the lifetime value of a client suggests that even a small percentage of clients leaving will have a big impact.”
So, to help prevent your practice from losing clients, Littlechild offers some of the top reasons why clients jump ship:
> Investment performance
The largest portion of clients who participated in Littlechild’s survey indicate that they chose to change their advisor because their investments did not meet their performance expectations. According to the survey data, that amounts to about six in 10 respondents.
This does not mean you should be chasing stellar returns or face the departure of your clients. Quite the contrary.
An important strategy is to focus on other aspects of the relationship, such as client service and planning, so the emphasis is not on returns alone. Also, foster reasonable performance expectations among your clients so they are prepared for normal market fluctuations.
> Client service (or lack thereof)
The second-most common reason that clients change advisors, according to the report, is the overall levels of service clients receive.
As the range of services required by clients becomes increasingly complex — involving such issues as cross-border tax planning and business succession planning — it is important to be able to fulfill those demands. This doesn’t mean you have to become specialist in every aspect of financial services; often, this issue can be addressed by developing a good network of centres of influence or referral partners.
While your compensation structure is clear to you, it isn’t always clear to your clients.
Almost one in four clients surveyed by Littlechild’s firm changed advisors because of the advisor’s fees.
So, in order to prevent “sticker shock” on the part of your clients, have a frank discussion with each client to ensure they understand how your fee structure works — and what they are getting for those fees. Focus on your strengths and how you are helping them reach their financial goals.
For more on discussing fees with your clients, visit: http://www.investmentexecutive.com/-/having-the-talk-with-your-clients
> Personality conflict
The way advisors and clients get along on a personal level has played a role in relatively few cases of clients leaving their advisors.
Although the personality issue is not a frequent cause of client dissatisfaction, it is important to understand that the relationships you create with your clients can have an impact on your business.
This finding also suggests that if you manage correctly the aspects of the relationship that you can control, you should have a good retention rate — even among those clients whose personalities are not entirely in sync with yours.
Tomorrow: Understanding the “switching behavior” of clients.