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Industry Spotlight > Broker Dealers

Satisfied Clients Don’t Make Advisor Referrals: Schwab, Texas Tech Study

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Fifty-three percent of clients rate their advisor a nine out of 10 rating in “overall level of satisfaction, according to a new study, from Advisor Impact, Charles Schwab Advisor Services, and researchers at Texas Tech University.

The 2010 “Economics of Loyalty” survey shows that client loyalty, however scores a bit higher, with 74% of clients “extremely likely” stay with their current advisors for the next year. Most clients, 88%, have not “considered switching.” But having a client bestow the utmost honor of a referral eludes most advisors—only 29% of clients have referred someone to their advisor in the past year—even though 91% are “somewhat or very comfortable providing a referral.”

Not Making Referrals

“What the study found is that while the numbers are positive, there is a clear disconnect between satisfaction, loyalty and referrals,” Julie Littlechild, president and founder of Advisor Impact, said in the announcement on Wednesday.

Of note, the survey includes opinions of more than 1,000 investors, but does not differentiate between customers of broker-dealer reps, and clients of investment advisors, planners, etc. When asked why there was no information on which kinds of intermediaries investors were dealing with, Littlechild (left) said in an e-mail interview with AdvisorOne: “we run into problems getting accurate information from investors as to which channel they are actually in. Strange, but there are many inconsistencies in the reporting on that (e.g. I work with an RIA and the firm is Smith Barney etc.).”

Investor Confusion

This goes right to the heart of the SEC’s 2008 study of Investor and Industry Perspectives on Investment Advisors and Broker Dealers,” also known as the “Rand Report,” which says, “Most representatives of investment advisory firms said in interviews that they did not think that investors knew the differences between broker-dealers and investment advisers. Some thought that, if they did know about the differences, this knowledge might affect their decisionmaking.”

This confusion about intermediary roles makes an enormous difference in the quality of the advice, the overall costs, everything. Littlechild added in an e-mail that “It’s such an important issue but tells us something about the confusion in the minds of investors—and believe me, we’ve tried a number of different ways to get at the real information.  I also noticed that about a quarter of clients don’t know how they are paying in fees (and I’m sure some who said they did were wrong)."

‘Engaged Clients’ = ‘Thriving Practice’

The survey did find that, “there is a direct economic correlation between having ‘engaged’ clients and having a thriving practice,” said Schwab Advisor Services’ Director, Business Consulting Services, Nancy Allen, adding, “These ‘engaged’ clients are a great sourceof referrals for advisors, they just need to know how to close the gap by working with the right clients, having the right conversations and asking the right questions.”

“This year’s study gets us closer to cracking the code to client satisfaction, client loyalty and client referrals,” stated Deena Katz (left), Texas Tech University associate professor of personal financial planning. “The ‘Economics of Loyalty’ reports, both in 2008 and 2010, clearly demonstrate that when advisors move clients from merely ‘satisfied’ to ‘engaged,’ advisors can substantially impact the profitability of the relationship,” she added in the release. Katz is an alum of the 50 Top Women in Wealth and was on the Wealth Manager advisory board that selected the 2010 inductees, and one of Investment Advisor’sThirty for Thirty.” 


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