Stronger Than Ever: Client Loyalty

Forget the "studies," says Elzweig. Complexity in markets and in financial services is good for advisors, even in troubled times, as shown with today's high rates of customer loyalty.

Beginning with last year's market meltdown, there have been a series of alarming pronouncements predicting that advisors were about to get dumped en masse by their clients.

For instance, Russ Prince & Associates released a much-quoted study in March 2008 that warned nearly two-thirds of wealthy clients were likely to fire their advisors. That same month, the Spectrem Group published another survey that portrayed affluent investors as "fickle:" Sixty percent professed to be loyal to their financial advisors, but only 33% said that they would follow them to a new firm.

The dire forecasts on client loyalty continued this year as the market cratered. One well known advisor practice management coach opined to the Dow Jones Newswire that only 25% of assets move with the advisor to the new firm, 25% stay with the old firm and 50% are "up for grabs"

Our experience is quite the opposite. In fact, we'd say that the turmoil of the past two years has reinforced the value of competent advisors in the eyes of their clients. Loyalty is as strong as ever.

To be sure, the market meltdown caused many clients to re-evaluate their relationships with their financial advisors and their investment programs. That's typical in any bear market; in fact, clients switch advisors all the time regardless of market conditions.

Our experience of the past two years has shown that advisors have commanded customer loyalty comparable to the bull market era: Eighty percent or more of desired clients and assets followed them to their new firms and within the first few months.

When you think about it, the numbers make sense. Why else would brokerage firms continue to offer big recruiting packages - even if many are contingent on a combination of production and asset retention? The firms are counting on success, not failure.

The studies of clients reveal something important: clients don't understand what they will need during market crack-ups. In theory they expect to show who's boss and move on or to take care of themselves. But especially when the turbulent times arrive, clients cling to advisors who can help them steer a steady course. For high-end clients with complex financial needs, the effect is even more pronounced.

Consider the research done by the same Spectrem Group in August 2008. They found that 36% of investors with net worth between $5 million and $25 million described themselves as "advisor-assisted" -- up from 21%! During the same period, the number of "Ultra High Net Worth" investors defining themselves as "self-directed" plummeted to 15% from a high of 26% two years earlier.

What we have come to see over the past decade is that complexity is good for advisors. And the markets, products and erratic movements are all complex. Clients need sophisticated help more than ever.

While some may have been shell shocked by the market meltdown and sought greener pastures, clients largely stuck with their advisors. The overall trend is a good for advisors who can formulate cogent investment and wealth management strategies and effectively communicate them to clients.

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Mark Elzweig is president of Mark Elzweig Company, an executive recruiting firm that has been working with financial advisors and asset management firms for 25 years.

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