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A Matter of Trust

By Maya Ivanova

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Are you meeting your clients’ expectations? It’s an important question, one which most advisors typically answer by quoting their performance statistics. But is that what investors today actually value the most? According to the results of our most recent AdvisorBenchmarking survey, there’s another attribute that trumps performance. Although clients today want their advisor to be a high performer, they really want someone they can trust.

According to the Rydex AdvisorBenchmarking survey, 61% of advisors believe that trustworthiness is the most important reason why clients selected them, while 53% of financial professionals believe that clients chose them because of their financial performance.

In an increasingly challenging market environment, it’s actually good to know that performance doesn’t reign supreme as the reason your clients first choose you and then stay with you. Trust is the glue that holds all relationships together, and it’s an opportunity for advisors who want to retain their clients in good times and in bad.

Another Look at Performance

Advisors claim that increasing assets under their management is their number one goal. Good news–they’re on the right track. Advisors have seen their assets under management (AUM) and profits rise significantly in recent years. After the sharp drop from 1999 through 2002, advisors in our sample saw their AUM rebound in 2003 to $87 million on median at year-end and further grow to a six-year high of $105 million on median at year-end 2004. Yet it’s important to recognize that advisor asset growth continues to parallel the direction of the stock market, with the S&P 500 up 10.87% in 2004 and AUM growth surpassing it with a 21% increase for the same period (see chart #2 below). If the stock market takes a dip, how will advisor AUM–and consequently, client retention–fare?

Take the Time to Build a Relationship

It’s important to think about assets not just as a function of performance–they’re also a function of client acquisition and retention. In 2004, advisors lost 5% of their clients, on median, to another advisor. Why? Not necessarily because of financial performance, but potentially due to a poor relationship between the advisor and their clients.

Our research shows that there is a direct correlation between an advisor’s profitability and time spent with clients. Specifically, the small fraction of advisors who spent more than 60% of their time with clients enjoyed profits that were eight times greater than those advisors who spent less than 30% of their time managing client relationships. (See Practice Edge, June 2005 )

Because advisors are so busy managing their clients’ money and dealing with operations, they may unintentionally neglect their clients’ needs. (To see the most popular ways that advisors keep in touch with their clients, see Chart 3 below)

Conclusion? Even though advisors understand how important having a close relationship is to their customers, they still are not meeting with clients often enough and thus aren’t developing close relationships with them. If your clients’ needs aren’t being met, they’ll soon start searching for an advisor that will meet them. Cementing your personal relationships with clients is much more important than most advisors realize, and it’s one factor over which you have the most control. If you haven’t already started to build trust with your clients, now may be a good time to get started. Better understanding your clients’ needs–by conducting surveys or asking in-depth questions about your clients’ needs, for instance–is the first step in building the trust you’ll need to retain your clients in all market environments.