Portfolio > Mutual Funds

How to Keep Your Clients From Leaving

Your article was successfully shared with the contacts you provided.

In last week’s post, we discussed why clients leave an advisor and how you can keep clients happy. To summarize, no matter the reason given, absent some illegal act on the part of the advisor, the root cause of client departures is unmet expectations. The client expected one thing and the advisor didn’t deliver. This is because the client didn’t tell the advisor what they expected or the advisor didn’t communicate clearly with the client in setting realistic expectations. 

People form beliefs based on personal experiences and information they’ve learned, even though the information may not always be correct. Although the truth is something which should be treasured it’s not always given the priority it deserves. How many times have you believed something to be true and then found out later that it wasn’t? Without a thorough vetting process, things like this can, and do, occur. Here are a couple of examples. 

I received an email from a mutual fund company this past week touting how well their fund held up when interest rates rose earlier this year. Although the email didn’t come right out and say that it was a bond fund, it was implied. I say implied because the fund was included in a graph with several other funds, all of which were bond funds. It showed how this fund had a very small gain compared to a loss for all of the other funds. When I checked the ticker symbol, I learned the fund was an allocation fund.

That’s right, it was at least 50% stocks. Hence, it was an apples-to-oranges comparison. Moreover, it wasn’t even a top-shelf allocation fund! Even a bad fund can be made to look good if it is compared to a fund with worse performance. 

We, as advisors, need to be careful when spreading information as well. For instance, one of the best examples of a misunderstood research project stems from the Brinson, Hood, and Beebower study of 1986. Many advisors believe that this study concluded that “asset allocation is the most important determinant of a portfolio’s return.” However, this is not what the study found. The study actually determined that “asset allocation is the most important factor in determining the variance of the portfolio’s returns.”

Sometimes, even the most sincere individuals will get it wrong. If advisors are even a little bit prone to misunderstanding, what about clients? After all, the vast majority of clients are not familiar with the intricacies of portfolio management. Therefore, we need to study diligently and communicate clearly so our clients will know exactly what to expect. 

Until next time, thanks for reading and have a great week!