I had my second audit in three years this week. During the audit, one of the examiners asked if I ever advertise. My response was, “Rarely.”

When you begin an advisory business, gaining new clients can be a slow, arduous process. Even though the growth of your business hinges on client acquisition, it takes a while to get to the point where the stream of referrals is enough to provide the growth you need. In theory, the longer you are around, the more referrals you should receive. My business has been in existence for three years now and the referral stream is slowly beginning to accelerate. What makes this the case?

Several years ago I heard Roy Diliberto say that the most effective marketing plan is your current client base. In other words, satisfied clients refer their friends. Naturally, the question is, “How do I create satisfied clients?” You begin by setting realistic expectations and then delivering on your promise.

All this begins with client expectations in each area of your business: portfolio management, financial planning, and service. Two out of three aren’t good enough if the client happens to value the one lagging area more than the other two. For example, I had a client who was also an engineer – granted, a risky combination. In the planning department, our deliverable was stellar. As far as service was concerned, we passed the test with flying colors. However, in the client’s mind, the portfolio management was not up to his expectations. Let’s take a deeper look at this.

The period in question was from April 1, 2009 until recently. During this period, the stock market was up 44.1% as measured by the S&P 500 Index. One of his portfolios returned 35.0% and the other 22.0%. The first had about 50% in stocks and the other had only 25%. To summarize, the first portfolio garnered almost 80% of the return of the market with only 50% exposure. The other realized 50% of the market’s return with only 25% exposure. By all accounts, it was a good day, right?

Wrong! Dead wrong!! Why? Because his expectations were so far out of line that, at least in his mind, it wasn’t good enough. A year earlier he was thanking me that his portfolio didn’t experience the severity of the market. Now, he was unhappy.

What really happened? I suspect that another advisor painted a surrealistic portrait like that of the great artist Salvador Dali. Dali’s work was rather hallucinogenic and distorted in nature, but widely accepted nonetheless.

The lesson learned? Stay close to your clients. Make sure you are exceeding their expectations. Even so, you may do everything you can possibly do and the client will still be unsatisfied. Perhaps, some relationships were just never meant to be. I suppose that’s what Forrest Gump’s mother meant when she said, “Life is like a box of chocolates. You never know what you’re gonna’ get.”

Do you have similar stories?

Thanks for reading!