From the July 2009 issue of Investment Advisor • Subscribe!

Danger & Opportunity: Service Excellence--The Advisors' Take

A roundtable discussion evinces what constitutes great service on the giving and receiving ends.

Like the weather, everybody talks about service. But what actually constitutes good service, and does the definition change if you're offering it to clients in these challenging times, or getting it from your partners? In a roundtable conference call with three seasoned RIAs in late May, I asked them those questions. While they all custody at Schwab Institutional (Disclosure: that company facilitated the conversation, though Schwab did not vet the questions nor shape the answers), in typical RIA fashion they spoke openly about their frustrations and their triumphs.

For Carol Benz, a principal at Bingham, Osborn & Scarborough in San Francisco, "our ability to track and measure our service delivery" is based at first on establishing what the client's expectations are, then making sure all team members know those expectations. While Bingham, Osborn is planning on implementing a new CRM system to track service performance more effectively, for now "the main tracking device we use is client retention. We're very particular in reviewing client departures, why they may be leaving us, and measuring those departures by both AUM and numbers of clients, year over year and over longer periods of time." Whether it's technology or client retention, however, Benz argues that "the best tool to ensure the good delivery of service to clients is hiring the right people who are going to live and breathe the model." While Benz says there are "certain qualities in the service person that must be inherent," if those people are "not the right fit, no kind of metric is going to solve the problem."

Colin Higgins says the Golub Group, the San Mateo, California-based firm where he serves as president, implemented a CRM system nine months ago that has made a "big difference in allowing us to track the metrics" of client service, including "the points of contact." The new systems "has allowed us to track which of these contacts is proactive, and which is reactive. We're trying to focus on being as proactive as possible. Looking at the first quarter of the year, 65% was reactive due to the market turmoil, and only 35% was proactive," though with the tempering of volatility in the markets since early March, Higgins says "we're back to a 60%-40% proactive split."

Even with the new CRM system in place, Higgins agrees with Benz that "the key is having the right people, the right culture, the right incentives in place. We compensate our entire team on retention" of clients, he reports. Moreover, when it comes to the people issue, Higgins says "it's the little things that matter," like answering the phone "on the first or second ring." He quickly notes that the Golub Group does have a voice mail system, "but it only goes on after hours." In the end, he says, "we want to treat our clients the way we would expect to be treated: in being proactive and responsive."

For George Young of Villere St. Denis in New Orleans, his firm sends out individualized quarterly letters to each client. That helps to "preemptively address their concerns." However, Young recalls that "culminating in mid-February," perhaps 10% of his clients were "demanding an inordinate amount of time, and we explained to two or three of them that we couldn't continue to service them." He argues that to provide good service to all your clients, it may be necessary to decline to spend too much time with a few. "If your clients are unreasonable," he says, "you don't need to keep them. It usurps a lot of your time from serving the clients who have placed confidence with you wholeheartedly."

How Much Is Too Much?

What is the right balance when it comes to client communications? Benz's firm found that during the worst of the crisis e-mail alerts were good for some people, while others might have thought it was too much. What was "very useful," she says, were Webinars and conference calls "where we invited clients to attend; those who didn't wish to could refer to it later on our Web site." Higgins argues, however, that "you cannot over-communicate in a market environment like we just went through. Those who value that will tell you so, and those that won't will, too."

But what about the service these advisors get from their partners? How do they define service excellence on the receiving end? "If a partner gets things wrong too often, it won't be a long relationship," says Benz, but assuming that's the case, "ultimately it will be how the partner responds when something does go wrong that separates the good from the best." She uses the example of Schwab itself, noting that "when we trade, if the Schwab traders sees something that doesn't look right, he'll call us and tell us, and that allows us to fix what could become a problem before it actually becomes one. By the same token, if something goes wrong, we'll usually get a call telling us and then we can act on it as opposed to us having to discover it." That's where being proactive, "taking ownership and responsibility to solve any problems that arise," is appreciated.

That's the difference between being a service provider and partner, says Higgins, giving another compliment to Schwab. "They take the time to sit down and figure out our business model; they take the time to find out our goals; they spend the time to get to know us. They treat us like we treat our clients. That's critical."

The Integrity Issue

There's another core component to service excellence, according to the advisors and to a recent survey Schwab conducted (see sidebar): integrity. For Higgins, integrity is "crystal clear to us: it's doing what you say you're going to do. There should never be an instance where there's a promise made or a commitment made that not's fulfilled. It takes forever to earn trust, and an instant to break it."

That's a particular danger, says Young, since "It's easy to overpromise these days. We get a lot of questions from clients asking 'What's the market going to do in the next three months or six months?' When people want some promises from you, and we don't know, you have to admit that to the client."

Integrity is tied up with trust, which has been broken not only by Bernie Madoff but by various large financial services firms that did not put the clients' interests first. Those occurrences have a silver lining, notes Higgins.

"It's created a tremendous opportunity to differentiate ourselves, especially from those large institutions that deserved to lose the trust of their clients. The independent investment advisor: unbiased and unconflicted. The more transparency there is in the business, the better for the client and the better for us."

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