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Portfolio > Portfolio Construction

Keeping Your Current Clients Happy

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When the subject of client retention arises it usually creates a great deal of interest among advisors. In my view, there are two areas which are most important to sustain a business. The first is creating a steady stream of prospective clients. The second is to retain existing clients. It is this second area on which we will focus today. 

Why Do Clients Leave Their Advisor?

This has been the subject of much discussion and multiple surveys. The most-cited reasons in surveys often include lack of contact, incompetence, poor investment performance, etc. Although I lack the empirical data to support my theory, I am wholly convinced that in the absence of an illegal or unethical act on the part of the advisor, the primary reason a client leaves is because the advisor failed to meet the client’s expectations. 

From the client’s point of view, the truth is whatever the client believes it to be. This is where we derive the maxim, “The customer is always right.” While this is not always true, if the client expects something and the advisor fails to deliver, even the most patient client will depart. Therefore, it is not only important, it is vital, that the advisor and the client are in complete and full agreement about expectations. This is not to say that lack of contact is unimportant. However, a lack of contact is really nothing more than an unmet expectation. I believe it all boils down to properly establishing and consistently meeting the expectations of those we are so privileged to serve. 

Let’s assume you have a client who is unsatisfied with his portfolio’s return. Is his concern valid? Is his expectation realistic? First, a client’s concern is always valid even if it isn’t always realistic. If not, then it’s the advisor’s responsibility to educate the client. 

For example, let’s say the client’s account is negative at some point after it was established, purely due to performance (i.e., not due to withdrawals). There are two primary considerations. First, how did the financial markets perform during this period? Second, how is the portfolio allocated and how much risk does it contain? In essence, a portfolio with greater risk will require a longer period of time before its final value should be judged. A client may expect his account to increase every month, even though history belies this opinion. It is up to the advisor to explain why this is not a realistic expectation. 

There is much more that can be said on this topic, however, here’s the bottom line. To help retain existing clients make sure you understand precisely what they expect on as many issues as possible. This includes their preferred method and frequency of communication, portfolio performance and potential for loss, appropriate amount of time to allow the portfolio to meet their performance expectations, and any other issues which [the client] may deem relevant. Finally, if you’re working with a married couple, remember there are two individuals. Therefore, you may need to gently prod the more reserved spouse to uncover his or her expectations. 

Thanks for reading and have a great week!


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