Very little can compare with the satisfaction that comes with adding new names to the client list. But obtaining new clients is costly and time consuming. While it is absolutely necessary to regularly grow one’s business, time spent pursuing new accounts means less time to nurture existing clients – the ones who are enabling you to pay the rent while you hunt for new business.
There are several advantages to working toward spending more time with your established customers and a little less time chasing new business. Not the least of which is keeping your clients happy enough not to be tempted to take their assets to another firm, as a strong retention strategy provides regular, predictable cash flow and is generally not as costly to maintain.
Consider that when working on an existing relationship, there’s no need to spend time explaining your services and areas of expertise. You already have access to personal information such as age, marital and health status, risk tolerance, years to go before retirement as well as other potentially useful data – all conveyed in the most basic client questionnaire. This data can be used to make existing clients better clients.
The 2006 Rydex Advisor Benchmarking (www.advisorbenchmark.com/practice) survey studied the ratio of clients lost and acquired by financial advisory offices. It found that not only do the best offices – those with a steady growth rate, high profitability and a wide range of services – have low client acquisition, but they generally have a greater client retention rate.
According to the survey, average firms lose 15 percent of their clients per year, compared to only 3 percent at top firms. While acquisition efforts add an average of 18 percent more clients to a middling firm’s annual client base, when defections are factored in, total client growth is 3 percent. On the other hand, while the overall client growth rate at better firms is 1 percent, the growth rate of Assets Under Management (AUM) – a key revenue indicator – was 25 percent vs. 21 percent for the average office down the street.
If the secret to building a high-level practice is doing a good job holding on to existing clients while attracting a relatively low but steady number of new ones, the question is: How do top producers consistently execute this maneuver?
“Getting new clients is the hardest thing about this business,” says David Altschuler, CFP, a 27-year veteran advisor in Woodbury, N.Y. Altschuler, who manages over $150 million for some 450 clients, has an annual turnover rate under 1 percent. While he admits “it’s never fun to lose a client,” he held his last seminar in 1990. Word-of-mouth referrals and maintaining his client base has kept his practice percolating. “Be honest with yourself,” says Altschuler, who has five professional designations. “List your strengths and weaknesses, consciously set realistic goals and always keep learning.”
Consider that 22 percent of millionaire households use independent advisers to manage 56 percent of their investible assets – the largest share among financial service providers, according to a survey released last March by Fidelity Investments. Why are independent advisors ahead of the pack when it comes to garnering a larger share of the affluent client’s wallet? One of the reasons millionaire households like working with independent advisors is the wide range of services they can offer, as opposed to those working with a more restricted list. They are looking for a partner to help them achieve their goals. The affluent clients frequently do not want a formula dictated by a firm as much as they want a relatively customized solution. Other items on their shopping list: Efficient service; fast, accurate responses; regular, in-depth analysis of holdings; and bias-free recommendations. Sincere, steady communication can be the basis to providing a client with what he wants and thus build a long-term relationship that bears fruit for both parties.
“The most important [skill] of a successful financial advisor is the ability to retain clients through constant communication. The loss of a client is not usually attributed to performance, but lack of communication or a reaction to a known or unknown client need,” says Jeffery Van Wart, president of King Capital Advisors in Houston, which manages some $750 million. “Most clients will first say that they are looking for performance. The reality is that performance is important, but it must be in line with excellent service.”
So how much communication is enough? And what sort of communication is appropriate for today’s client?
Richard Laermer and Mark Simmons, co-authors of the newly released “Punk Marketing,” say “passive and traditional marketing is sinful … it’s time for advisors to up their game.”