Close Close

Practice Management > Building Your Business

Building the bulletproof practice

Your article was successfully shared with the contacts you provided.

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 ( 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.”

Advertising and marketing industry veterans, Simmons and Laermer theorize that over the past 10 years, a transitional shift in attitude and a tilt in the balance of power between customer and supplier have occurred. This shift has ramifications for every industry – from how McDonald’s fills its menu to the way General Motors designs automobiles. It also speaks volumes about what advisors should be doing, not only to survive in this constantly evolving industry but to thrive in it. Advancing technology and people’s ability to more efficiently communicate with each other plays a large role in this phenomenon.

“Control has shifted to the customer,” Laermer notes. “Customers are more savvy than ever before and are leveraging this ability.” The advent of self-directed pension and brokerage accounts and the plethora of research now available thanks to the Internet and cable television has put more personal financial information into the hands of the public. Not only can investors discuss how much their mutual funds have returned but they now more freely disclose other things such as fees and what sort of service they’re receiving from their advisor.

The authors note that today’s consumer wants to feel that his advisor has his “best interest at heart.” He does not want to feel that he’s part of a gigantic, commoditized process where each client, in his advisor’s eyes, is the same as every other. And as customers become less passive, traditional ways of reaching and serving them will become obsolete.

“Competition is very common in this business, but don’t be afraid of it,” says Bruce Fenton, a 13-year veteran with Atlantic Financial in Norwell, Mass. “Performance is not always the main reason a client comes or leaves. It’s often service.” It’s important that an advisor and client see eye-to-eye early in the relationship, and Fenton – who targets the high-net-worth client and has retained more than 95 percent of his client base – emphasizes taking time to be clear about expectations. “Focus on your client type,” he says. “This is best done early on. Be proactive. Make sure you tell them your practice’s strengths. If you find you’re not compatible, it may be better to refer them to someone else.”

When it comes to contact, Fenton e-mails an original, monthly newsletter and frequently telephones clients. “It hurts when a client leaves after you’ve done a good job, but often it’s for an understandable reason,” he says. Nevertheless, Fenton keeps former clients on his mailing list. “Often a former client will tell you things a current client won’t,” he says. “Address these concerns.”

Paul Puleo, an advisor with Messing & Puleo in Boca Raton, Fla., agrees. “You’re not always aware that your client is being wooed by a competitor,” Puleo says. “They may receive a seminar invitation or a call from an advisor referred by a friend or relative. To combat this, you’ve got to provide the utmost in customer service. Listening comes before selling.”

For Puleo, that means promptly returning telephone calls and never letting the phone ring more than twice. His firm does not use an automated telephone service, as the partners believe their clients deserve to speak with “a real human being.” He e-mails clients monthly and immediately works to correct any problems. One of the most common complaints he hears when meeting with a new prospect: “‘My advisor doesn’t call. He forgets about me.’ No one wants to be forgotten about.”

“I once provided a client with a solution set that was good for all parties, but outside parties caused a disruption to service. We were sorry to see them go,” recalls Andrew Samalin, an advisor in Mt. Kisco, N.Y. “Sometimes it’s difficult to manage all externalities, but we’ll never stop trying. [Eventually], the client came back. He appreciated the solution, and we truly appreciated his return. When a client feels that you are his financial advocate, the relationship is both solid and long-lasting.”

Each of the advisors interviewed urges his peers to take stock of what they can offer, refine their niche(s), get behind the latest technology and then regularly reach out to customers and prospects in new ways. “There’s no substitute for communication,” advises Puleo, a 21-year veteran who advocates making sure both parties understand the “financial objective” and to avoid those with unrealistic expectations. Puleo, who’s turned down new accounts when the fit was not right, has also had clients return after leaving for another advisor. “I re-interview returning clients to learn their expectations.” Puleo says. “It’s a matter of trust.”

Van Wart agrees. “A client may leave only to find that the grass is not always greener with another account executive or at a different firm,” he says. “Although a client may leave due to a disappointment in one area, they may discover multiple issues with a new relationship. Clear and regular communications eliminates any potential misunderstandings and helps confirm strategic agreements developed in previous communications. Through this communication a client’s holdings, investment strategy, and any profile changes are proactively discussed.”

“I’ve had cases where returning clients have told me I kept in touch with them more than their new advisor,” recalls Fenton. “Ask clients what they expect from the relationship. Communication builds trust. If clients trust you they will put their money with you.”