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The Keys to Safeguarding Your Client Base

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This Valentine’s day, do you imagine receiving client fan letters of loyalty and appreciation—or “Dear John” letters of annoyance and adieu?

Competition among financial advisors is as fierce as it’s ever been—and now, of course, robo-advisors have muscled their way into the fray. So making sure to safeguard your practice from aggressive competitors is nothing else than essential.

It starts with being transparent, specializing, and taking a proactive approach. Also: Be a communicator par excellence.

Vital to adding new clients and keeping the ones you have is to connect with them emotionally. Indeed, 84% of affluent investors with more than $1 million want to first connect on an emotional level with their advisors and then justify engaging them based on logic, according to 2005–2006 research conducted by CEG Worldwide, coaches to top FAs.

Alas, “most advisors are terrible at making that emotional connection. The most powerful way is by sharing why they’re passionate about serving their particular niche,” says John Bowen, CEG’s CEO, based in San Martin, California.

Being Transparent

A proactive mode that anticipates client needs seems basic; yet many advisors let folks down. Nowadays, a paramount need is to keep investors informed about activity in their portfolios.

“These times call for maximum transparency. Clients have an insatiable appetite to understand what’s going on,” says Ron Carson, CEO-founder of Carson Institutional Alliance and Carson Wealth Management Group, with 19 locations nationally.

Carson, headquartered in Omaha, Nebraska, and his advisors send clients trade notifications whenever they make adjustments in investment strategies, explaining—in layperson’s terms—their rationale for reducing or adding.

“Clients love it. They tell us that sharing this information makes them feel much more comfortable with the strategies they’re invested in,” Carson notes.

Further, four times a week in all Carson offices, advisors hold group meetings for clients and prospects. Each has a theme: “Macro Monday,” “Technical Tuesday,” “Wealth Enhancement Wednesday” and “Thorough Thursday”—the last, a deep dive into selected holdings.

“We’ve opened up the hood: Clients can listen to what our thinking is and ask questions,” Carson says.

Without a doubt, when it comes to fees and expenses, the need for transparency is critical; and the sooner FAs realize that, the better.

“For advisors to hold on with a deathlike grip to the old way of doing things, where no one knew how much they were paying, what they were paying for and what they were getting into isn’t going to fly,” says Phil Fragasso, founder of the service, Audit Your Financial Advisor. Concerned clients hire him to evaluate their advisors’ investment strategies, portfolio performance and fees.

“Most of my clients have no idea how their advisor gets paid,” says Fragasso, a former RIA firm president. “People come to me because they either don’t understand [their investments], or they think that something isn’t right—and usually something isn’t right.”

Fragasso’s audits result in 80% of clients leaving their advisors within weeks of reading his reports. Frequently these show advisor negligence, fee obfuscation or that they’re simply not doing what a competent FA is paid to do.

“Most advisors built their businesses on charm and personality as opposed to true investing smarts,” Fragasso says. “What I find most egregious in the portfolios is the lack of asset allocation and true diversification.” Also, he often discovers that the stated objective—say, income generation—has “absolutely no connection with the investments, which may be too conservative or way too aggressive.”

Being open, as opposed to obscuring fees and charges, is what clients, on guard since the financial meltdown, require. It’s an uncomfortable, if not bad, scene for investor and advisor when a client opens their statement and shocked, phones the FA: “What’s this $50 charge for!”

To be sure, “explaining fees to the client proactively helps them trust the advisor,” says Joni Youngwirth, managing principal-practice management, at Commonwealth Financial Network, based in Waltham, Massachusetts. “Greater transparency allows for greater trust. Greater trust means the client is less likely to be wooed away by some other advisor.”

The best way for traditional FAs to safeguard their business from the “robo-advisor movement,” says Fragasso, is by “building relationships and educating clients about what they’re doing, why they’re doing it and being transparent around the portfolios.”

Specialty Search

Protecting your practice requires specializing in a particular area; for example, retirement planning. This acts to establish and promote your expertise.

“The more specific you are, the more targeted to your specialty, the more clients you’re going to keep, absolutely,” says Mike Kaselnak, founder-principal, 5Q Group, in Rochester, Minnesota. He coaches FAs on how to make clients aware that their current advisors are taking advantage of them.

Pinpointing a specialty is enhanced by publishing articles, and even books. This confers to the advisor the sheen of celebrity in their market.

Alongside that, to stand out from the competition, offer clients something distinctive. Bowen cites how two big consumer companies have done it: Enterprise, which grabbed the No. 1 rent-a-car spot away from Hertz with the perk of free customer pick-up, and Domino’s, rising to the top with their former—ultimately tragically ill-fated—30-minutes-or-less pizza delivery guarantee.

One way FAs can distinguish themselves, Bowen suggests, is by sharing with clients their unique back-stories about the passion they felt for entering financial services.

You’ve read it before, and here it is again: To be highly successful and stave off competitors, excellent client communication is imperative. Poor communication is “the No. 1 reason” clients leave their advisors, according to Kaselnak.

“People don’t always hear from their advisors, so clients have to do the reaching out,” Kaselnak says. “That isn’t the way to keep clients.” He recommends twice-a-month contact, at least, with a snail-mailed newsletter and an email, both highlighting content about the FA personally, such as a recent vacation or family celebration. Neither communique should be about client investments.

“If you want to safeguard your clients,” Kaselnak says, “make them ‘client-friends.’ The way to do that is not always talking about money, money, money—investments, investments investments. If I go on a date and the only thing I talk about is sex, the girl knows that’s all that’s on my mind. If I only talk to clients about their accounts, they [think] the only reason they’re my client is that I want their money.”

Keeping in touch frequently is one way to differentiate as an advisor, Kaselnak says. “Even the best competition is talking to clients only four times a year, and most, just once a year. Communicate with clients—because if you don’t and one of your competitors does, you’re going to lose them.”

Carson’s goal is 100 “meaningful human touches” per year, he says.

“The industry is rapidly shifting to the ‘bionic’ movement: maximum technology combined with meaningful human touch is where the sweet spot is, and it’s taking a huge investment on all our parts to compete in that space,” Carson notes.

He continues: “Traditional wealth is already transferring at a much earlier time to the next generation, and the person who makes the decisions is going to determine whether they continue to work with you as an advisor or transfer to somebody else—or do it themselves.”

In light of that, Carson realizes that many younger clients are not keen on meeting or even speaking by phone with their advisors. They prefer to liaise by email and texting.

“They’re like: ‘I don’t want that human interaction’,” Carson says. “But the majority of our clients still prefer and appreciate it.”

Older clients use the newer technologies too, however: Those who find it problematic to travel to their FA’s office, often opt for online Skype meetings.

Still, nothing packs more punch than face-time, and many advisors remain successful in bonding through client appreciation events or golf outings. At Christmas, Kaselnak encourages the advisors he coaches to give clients a bus tour of the most dazzling holiday lights in their neighborhood.

Wealthy clients have five major concerns, according to Bowen: “They want help making smart decisions about their money; they want to mitigate taxes, take care of heirs, protect their assets from being unjustly taken; and they want help with charitable planning. Few advisors do, or facilitate, all that. What’s important is delivering that great wealth management experience affluent clients want while bringing something unique to the marketplace that resonates with your niche.”

Service Economy

Where does client service come in?

“There’s nobody who doesn’t have good service—at least in their own minds. But it’s not enough to be great in your customer service,” Bowen says. “You can’t differentiate yourself on service, and it certainly won’t make you distinctive.”

On the other hand, poor service can mean client dissatisfaction and loss. This can certainly occur when what the advisor perceives as exceptional service fails to match the client’s perception of what that entails.

“The safeguard is to provide the service that the client perceives as exceptional,” says Youngwirth. For instance, “if an advisor uses a ton of jargon that the client doesn’t understand, they couldn’t care less that the advisor remembers to serve their favorite beverage when they come into his office. They want to understand what you’re talking about! ‘Asset allocation,’ ‘appreciated stock’ and so forth—clients don’t know what that stuff means. So language is at the top of the list. It’s huge.”

Another “must” for meetings is appropriate FA behavior when talking with client couples; that is, don’t direct your conversation only to the partner who handles the finances, who is usually the husband.

“The advisor had better be smart enough to understand that there are two clients in the room, not one,” Youngwirth stresses. That is particularly important because “increasingly, husbands are saying that their wife needs to feel comfortable with the advisor since she’ll be working with them after he dies.”

Besides, wives can often veto their husbands’ decisions.

“The wife wears the pants in the family because when a decision has to be made that’s important to her, she will win 100% of the time,” Kaselnak says. “I’ve seen mousy, browbeaten wives put their foot down and crush their overbearing husbands. So pay attention to wives. They aren’t interested in investments; but get them involved by talking about things that are important to them, like family and security.”

Downturn Prep

When an inevitable market correction occurs—a juncture at which clients often change advisors—how do you protect your practice? Be proactive.

“You should be picking up the phone. Not contacting clients is crazy,” Kaselnak says. “If you’re reactive, you’re going to lose those clients.”

Kaselnak encourages his coaching clients to use robo-dialers (after obtaining customer permission early on) that phone hundreds of accounts in an hour’s time with a reassuring recorded message that signs off: “If you have concerns, I’m here for you.” Then he recommends following up with one-on-one calls starting with “A” clients.

But what if push comes to shove, and now a client is threatening to leave for another FA? What do you do?

“By then, it’s probably too late,” Bowen says. “If the client was having a good experience, they wouldn’t be looking elsewhere. You could ask them why. If they feel they’d be better served elsewhere, tell them they should go and that you’ll make it easy to transfer their account. Or you can say, ‘You’re going elsewhere on hope. We know each other, and I can fine-tune to address your needs. The odds of our being successful together are much higher’.”

Kaselnak views this scenario two ways as well—but neither predicts a happy ending.

“If a client comes to you with that kind of conversation, you’ve lost them,” he says. “Or, it could be a negotiation tactic for you to change their fee structure. They’ve already decided to leave; but if you can come back with a better deal, they’ll stay. That’s not the kind of relationship you want. It’s horrible going forward because now they hold the upper hand.”

Safeguarding your practice fundamentally means meeting clients’ expectations of what a top-notch professional financial advisor does—and then going that extra mile or two.

Be aware of today’s heavy competition, but don’t allow it to distract you from your primary mission and duty.

“One of the biggest mistakes advisor make,” Bowen says, “is spending too much time worrying about competitors and less [time] about serving clients well.”

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