The Value of Client Education

Advisors need to use the process to learn as well as teach

Remember the old Syms clothing store television commercials in which company founder Sy Syms would emphatically state, "An educated consumer is our best customer"? You can borrow a page from this renowned clothing purveyor's marketing strategy as you consider the connection between educating your clients and the reasonableness of their expectations of both you and the market.

Consider this key finding from the most recent AdvisorBenchmarking study: While more than half (62%) of the advisors surveyed feel that clients' expectations of the market are reasonable, 37% believe that their clients have either unreasonably high or low expectations. Such a disconnect indicates that advisors need to better manage their clients' expectations. "The management of clients' expectations is a function of education," according to Mark Balasa of Balasa Dinverno & Foltz LLC, and the survey results seem to paint the same picture. Among the 33% of advisors who rated their clients' expectations as unrealistically high, 60% of them spend more time educating these clients about alternative investment products. These advisors, like Sy Syms, believe that an educated client is a more reasonable one, so time spent educating clients is a worthy investment. A client who is knowledgeable about the market and alternative investment vehicles may be less likely to panic during a dip, or sell at the first hint of a rise. As time goes on, these clients are much more likely to let go of their "unrealistically high" expectations and become more grounded in reality.

Getting to know your clients

Understanding your clients' investment goals and risk tolerance is a given when creating their portfolios. But let's take the "know your client" mantra one step further. Do you know which products they prefer? Do you know what they think of your service? Do you know how often they like to meet with you to discuss their portfolio? Do you know which services they might like you to add? Do you know what your clients have in common with each other? Surprisingly, many advisors don't know the answers to these questions and may be missing the opportunity to expand their business and better meet client needs.

A client survey or client advisory board can be an effective way to gather such information. Less than half of the advisors polled (43%) conduct surveys of their clients or have a client board (see chart 1). Those who do, however, benefit greatly from the information gleaned. For example, surveying allows advisors to understand the level of satisfaction clients have with their advisor/firm relationship. A firm can better gauge clients' satisfaction with its current range of services and learn what new products they might find most appealing. Most importantly, an effective survey helps advisors understand their clients' needs and motivations

Advisors who use surveys seem to understand the importance of this tool. According to the latest AdvisorBenchmarking study, the 62% of advisors who have clients with "reasonable expectations" use surveys to ask questions about current services and product offerings. Alternatively, advisors with clients who have "high expectations" are more likely to ask their clients which new services they would like to see offered (see chart 2).

Though the majority of advisors don't regularly survey their clients, those who do see it pay off in spades. Like Sy Syms, they see educated clients as their best clients--and also a valuable source of information about their own businesses.

Maya Ivanova is a research analyst with Rydex AdvisorBenchmarking.com, an affiliate of Rydex Investments.

She can be reached at mivanova@advisorbenchmarking.com.

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