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Financial Planning > Trusts and Estates > Trust Planning

Which Advisors Have Loyal Clients — and Why?

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Successful financial advisors often boast of keeping clients for 20, 30, 40 years or more. Indeed, these loyal folks are virtual referral machines.

But what motivates them to stick around? It isn’t only great investment returns or advisor efficiencies in execution.

It is because these clients have an emotional connection, or high engagement level, with their advisors. The FAs “get” them. They understand them. They know them more than just on a superficial “account” level. That bond stems from trust—and trust is what inspires loyalty.

“You don’t need to be best buddies and play golf together to have an emotional connection with clients. But if advisors manage their business in the direction of making strong emotional connections, there tends to be a rosy halo around them and their company. It’s like an insulator,” says John H. Fleming, Ph.D., chief scientist, marketplace consulting at Gallup, who is based in Princeton, N.J. Ongoing Gallup research has confirmed the strong emotional bond-loyalty association.

This past spring, after a proprietary study for a financial services firm focusing on advisors and loyalty, Gallup reported that an emotional connection was utterly “essential” to building loyalty, Fleming says.

Customer loyalty has become an increasingly important path to business growth. Companies not only hanker for it, they hunger for it. Loyalty is even measured by neuroscientists who use MRI technology to track changes in consumers’ brain activity linked to specific brands. Across all industries, Gallup says, firms are spending $2 billion a year on loyalty programs, most of them rewards-based.

Surprisingly, from 2010 to 2012, it was the financial services industry that showed the biggest growth—up 28%—in loyalty-program membership, according to Colloquy, the research division of LoyaltyOne, a provider of loyalty marketing programs.

For financial advisors, loyal clients give a practice stability and continuity. Client retention leads to gathering more assets, sparks more referrals and brings greater profitability.

“Advisors have a significant opportunity to leverage relationships that are really engaged. That taps into referral activity. And there’s a statistical correlation between satisfaction, loyalty and share-of-wallet,” says Julie Littlechild, an expert on FA-client engagement and CEO-founder of the financial programs and research firm Advisor Impact.

In its just-released “Rules of Engagement: 2014” study, Advisor Impact reports that a deep emotional connection yields major benefits, including growth for advisors, greater client confidence in reaching investment goals and “high trust” for the financial services industry.

Therefore, “engagement really matters,” says Littlechild, based in Toronto, Canada. “When there’s an emotional connection, the client becomes fiercely loyal—they can’t even talk about working with a different advisor because the one they have has impacted their life, not just their investment returns.”

Defining Loyalty

Loyalty has nothing to do with clients remaining with an FA out of inertia. Nor are consumers considered loyal when they stay with a store because it offers lowest prices; if one with lower tags crops up, they’ll move on.

What, then, is loyalty? Fred Reichheld, founder of Bain & Co.’s loyalty practice, who is known as “the high priest of loyalty,” defined it, in a 2001 Research interview with this reporter, as “a commitment to mutually beneficial relationships founded on a core set of principles that are put ahead of self- or short-term interest.”

Reichheld singled out Dell, Edward Jones and Vanguard among firms achieving high loyalty levels.

“The good financial advisors have loyal clients that will stick with them through thick and thin. But those advisors who are not involved with their clients will suffer from loyalty issues,” says Lou Harvey, founder-president of Dalbar, the Boston-based consulting and research firm that tracks service in the retail investment industry.

The relationship between FA and client is paramount in developing loyalty. In order to have a strong one, trust in the advisor must be established first.

“Trust underpins the emotional bond. To the extent that you highly trust your advisor, you’re more likely to be engaged with them and also with the company—and give them a substantially larger piece of business,” Fleming notes.

Trust is manifest in two steps: establishing it to begin with, then maintaining it to prevent erosion.

“Trust is the cornerstone of every financial relationship. It’s the underlying glue that holds it all together. Without trust, the relationship doesn’t exist,” Harvey says.

Three elements come into play to establish and keep advisor trust, according to Harvey: “The financial results produced; expertise in being able to understand, interpret and translate the client’s needs to a plan of action; and the level of service provided.”

Firms inspiring a high degree of client loyalty, include, Harvey says, Ameriprise (“They really take steps to understand what clients are thinking and how to respond”); Edward Jones (“A lot of it has to do with the training they provide advisors, and they set a reasonable-expectation model”); and Waddell & Reed (“A model similar to Ameriprise but on a somewhat smaller scale. They are very aware of what’s happening among the investors”).

Emotional Link

Creating an emotional connection has not traditionally topped an FA’s to-do list. But the experts say it should be given high priority.

A Gallup poll this past May found that only 25% of Americans have confidence in U.S. financial institutions, Fleming notes. Yet, as Stephanie Cohen, partner and leader of LoyaltyOne Consulting’s financial consulting practice, points out, “When you talk to customers, if they’re happy, usually it’s at the broker level. So there’s a disconnect—but in a good way—between, ‘I don’t trust the industry, but I trust the person I do business with.’”

Littlechild explains that occurs when “the nature of the individual relationship is about fully understanding needs and crafting plans or choosing product.”

Fleming, in an article co-written for the Gallup Business Journal in 2003, stated: “Without a strong emotional bond, satisfaction is meaningless. Satisfaction without engagement is a trivial pursuit.”

In the interview, Fleming notes how to develop this connection, “There first needs to be trust. That relates to delivering on your promises. Always doing what you say you’re going to do is the foundational step.” Other dimensions, which show up in Gallup research, include: integrity, with a focus on problem resolution; developing personal pride while internalizing the firm’s values; and passion.

So “once you’ve addressed needs and delivered on your promises, you’re in a position to be a perfect fit for that client, and that tends to make you irreplaceable,” says Fleming, who considers Ameriprise and Charles Schwab loyalty-generating stand-out firms.

A big part of creating that all-important emotional connection is making the client feel “special,” says Cohen, based in Richmond, Va.

Though giving to clients in the form of loyalty rewards isn’t an option, there are intangible ways of providing extras, Cohen says. For example, “if you open up on a Saturday because a client needs to have a conversation, that’s not a ‘reward’; but it can contribute to the relationship and, hence, to loyalty. It makes the client feel they’re being treated like someone special.”

Three components are required to develop a loyalty strategy, according to Cohen. They are equity—that which is received from an economic perspective; continuity—building and reinforcing trust to engage the client; and dialogue—communicating in a way that says: “You know me, you understand me, you make me feel important—and that’s why I want to continue to do business with you.”

Cohen amplifies: “The most successful loyalty programs have both the rational and emotional sides of loyalty associated with them.” Simply providing good service isn’t the key to promoting client engagement, according to Littlechild. “Service is table stakes. It doesn’t set you apart. What does is a holistic approach to understanding client goals and needs. It’s clients seeing the advisor in a leadership role because they feel completely confident in their expertise. It’s the advisor who really helps the client have those tough conversations and make the difficult decisions and gets them to focus on the right things.”

To start building a loyalty business model, No. 1: Determine what differentiates you, or even makes you unique, as an advisor, Cohen advises. She calls this locating your “white space in the market.” It becomes the crux of the FA’s selling proposition.

“Look at your brand and what you’re bringing to the table,” Cohen continues. “Understand the customer that you’re targeting and know how to appeal to them. It’s understanding the demographics, psychographics and behavioral aspects. This is a multi-step process [aimed] at [identifying] what would keep your customers coming back.”

Differences in client age segments are a big part of the loyalty scenario.

“We tend to be more loyal the older we get. The younger cohorts tend to have multiple relationships. The older cohorts tend to consolidate—you stay with a firm that didn’t burn you,” Harvey notes.

It’s substantially more difficult to inspire loyalty in younger clients—Generation X—and even a greater challenge with Gen Y, a.k.a. the millennials.

“There’s a general lack of loyalty that Gen X feels about [most] anything. For instance, they have no loyalty to their employers; they bounce from job to job,” notes Fleming. “Millennials have even less loyalty because they’re the first generation that has experienced a major economic downturn just as they were coming into the world [as adults]. They’re a little pessimistic and skeptical and have a different relationship to the world than older people do.”

Contrary to popular assumption, wirehouse clients aren’t significantly less loyal than clients of other channels, Advisor Impact studies suggest. That’s because “when the client chooses an advisor, be they a BD, an RIA or a wirehouse, they believe that that individual is the right person to work with and will do right by them and their family. It’s about the individual,” Littlechild stresses.

To build that critical emotional loyalty connection, “the most important thing,” Fleming says, “is to give the client a sense that you’re truly interested in their financial success and well-being even if, on occasion, that conflicts with the well-being of the company. When advisors give a really stellar client [experience], it shows up in client retention: People stay and invest more of their assets.”


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