When it comes to why the mass affluent, high-net-worth and ultrahigh-net-worth clients would change advisors, it all comes down to not feeling the love.
A Vanguard-Spectrem study asked 3,000 investors with net worth from $100,000 to $25 million to rank the main causes for switching financial advisors.
So what are the traits that the wealthy most value in choosing a new advisor? The three top factors, all chosen 90% or more of the time by respondents were, in descending order, that an advisor:
- Is honest and trustworthy
- Provides transparency and keeps me informed
- Has a good investment track record
Much less important to respondents was how advisors were compensated — either by charging fees or commissions — followed by “a strong referral from a trusted associate.”
There were other findings into the mindset of the higher-net-worth from the survey, which was conducted online from the fourth quarter of 2012 through the third quarter of 2013 by Spectrem. Respondents were the financial decision makers in 1,500 mass affluent households (from $100,000 to $1 million in assets, excluding the value of their primary residence); 1,000 millionaire households (from $1 million to $5 million in assets), and 500 ultrahigh-net-worth ($5 million to $25 million) households.
(Related ThinkAdvisor story: 8 Key Tips to Keep HNW Clients Happy)
First, the UHNW in aggregate tend to be older (average age: 65) and retired (59%), compared to the mass affluent and millionaires, with 72% of the mass affluent reporting they used a financial advisor, 82% of the millionaires and 89% of the UHNW. However, all three segments reported that they controlled much of their own assets, even when they used an advisor.
When asked to rank their primary concerns, number one was “maintaining my current financial position,” and number two was the “financial situation of my family.”
As for other opportunities, and challenges, for advisors, one finding deserves special mention. When asked if they planned to introduce their families to their advisors, only 50% of the groups, on average, answered yes, while a slightly smaller percentage said they would not make such an introduction. All the more reason to find out: what are the top reasons clients leave advisors? Read on to find out.
4. Long-Term Portfolio Losses
“Long-term (more than one year) losses to my portfolio” were chosen by 37% of the mass affluent and millionaire cohorts, while for the UHNW, 40% chose that as a reason to leave their advisor.
That makes sense — of the services clients expect from their advisors, choosing investments and diversifying their portfolios topped the list.
It's crucial for an advisor to be on the same page with their clients in regard to risk.
"This may be a good place to have a discussion on risk and how external influencers may be shaping your clients’ views and risk-tolerance levels," the report suggests. "Ask your clients how they would define risk. It may be different from how you as an advisor define risk."
Advisors may get a breather on performance worries for a while. Clients at all income levels in the study were optimistic that market performance would improve over the next year.
3. Not Being Proactive in Contacting Me
Ninety-three percent of UHNWs prefer that the advisor initiate contact with them. Most UHNWs want to be contacted quarterly (35%) or monthly (32%).
"Develop a communication strategy for your firm to ensure your clients hear from you at least quarterly," the report suggests. "Look for ways to leverage information from outside sources as well as opportunities for 'one to many' communication vehicles such as webinars and blogs to extend reach."
2. Not Providing Me With Good Ideas/Advice
So you're leaveraging outside information for your clients' benefit, providing newsletters and webinars and maintaining a blog. But is all that information relevant to your clients? Only a little more than half of respondents rated the content of face-to-face meetings with their advisors as "excellent," while less than a quarter said the same about newsletters, and about 10% rated advisors' blog content so highly.
"Ensure your communication content is aligned with the interests of your clients," the report suggests. "Topics such as Washington updates, tax concerns and health care concerns seem to be resonating with the affluent. Newsletters and blog content should touch on these top-of-mind issues. For face-to-face meetings, consider asking your clients what they would like to focus the discussion on before the meeting."
1. Not Returning Phone Calls/Emails in Timely Manner
Want to keep your clients? Return their calls and emails within a day.
Sixty-seven percent of ultrahigh-net-worth investors listed not returning phone calls in a timely manner as the top reason they left their advisor. Fifty-three percent cited email.
Sixty-four percent of UHNW respondents said they expected their phone calls to be returned within a day, 9% wanted a call back within the hour, and 22% said the next day.
As for emails, 60% wanted an answer within the day, 8% within the hour, and 28% by the next day.
"You should set a standard within your practice and strive to stick to it for your entire client base," the report says. "Look for ways to free up some time in your practice to devote to client communication. For example, using model portfolios or working with investment strategists can help lessen the time spent with clients in the investment selection area."
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