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.”
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.”