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Portfolio > Portfolio Construction

Rethinking the client communication arms race

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Have you heard this one before? “Clients don’t leave you because of poor performance; they leave because of poor communication.”

In light of the unique market performance of 2014, I have been reminded of why I put such a heavy emphasis on communication, in tandem with comprehensive planning. I suppose you could say that this column is my rallying cry to fellow advisors to reexamine your communications in order to keep clients and ensure you’re maintaining a strong relationship. Let me unpack this a bit more.  

While the financial media was trumpeting another really strong year in “the market” last year, with a return of over 13 percent, most advisors were left to defend their paltry performance to clients, eager to learn why they didn’t do nearly as well as the rest of the investing world. It turns out that diversification turned on us and caused us to defend it to our clients.

Because the 13 percent performance of “the market” was largely experienced by large U.S. companies, almost everything else in clients’ portfolios did considerably worse. Again, diversification did us no favors in 2014.

The larger point here is that the vast majority of our clients had no idea why they saw paltry-by-comparison returns until we told them why. This means that we had to tell them in order for them to have a better understanding of what was going on inside their portfolios.

Therefore, if you were on your communication game, you met with many disappointed people, looked them in the eye, and explained why they underperformed the Dow and S&P 500 last year. While they were no longer upset after the explanation, the conversation itself still may have felt awful, which brings me to a greater observation.

As more and more advisors transition their practices to a fee based-AUM model, a communications arms race is underway, and not in the way you may suspect. I see advisors increasingly adding “touches” to their client communications as a way to justify their fees. The touch counts are rising, with no end in sight. You see it all over the place: one advisor will declare “We touch our clients 120-150 times per year.” Another will claim 180 touches each year.

While this, in and of-itself isn’t bad, I really believe we need to rethink this approach. Imagine suggesting to your spouse that you’re planning to replace conversations with several weekly emails and newsletters, “touches”. Yeah, see where that gets you.

What if we focused on quality of communication instead of quantity? If I had touched clients 180 times per year but failed to sit down with them, face-to-face, to discuss why their portfolio “underperformed” the market discussed by the media, I would have missed the very best communication opportunity seen in years.

In fact, I heard a number of times, “We were really disappointed when we saw our returns, but we really appreciate that you took the time to explain to us why it happened. That means a lot to us.” Had I relied solely on our emails, print newsletters, and client social events as the necessary touches, the opportunity to be vulnerable and sincere with them would have passed, leaving me feeling like I had done my job by blasting them with communication, but having missed the mark.

Yes, find ways to justify your fees, if you must, and also recognize the growing importance of planning and review in a high-quality way to ensure a high-quality relationship. Touches don’t make for rich and rewarding client experiences, real relationships do.

Thus, before sending out another off-the-shelf, white-labeled investments email or newsletter, ask yourself: “Will this communication enrich the relationship for the client’s sake, or is it intended to just add touches for my sake?”

High-quality communications to consider:

1. Regularly scheduled progress reviews

Even if they choose to pass on their review this time around, you attempted to engage with them. When you do meet face-to-face, choose to engage them in conversation in your most vulnerable planning area. Disappointing investment performance? You bring up the subject before they do. Increasing LTC premiums? Tell them before the insurance company does. Stay out in front of the news.

2. Host a focus group dinner

Invite your key clients to a restaurant for a family-style dinner with a few other couples and ask them how you can improve your service to them. Ask questions and just let them talk; you’re likely to be astounded by what you hear.

3. Invite clients to social events with other clients

The very act of being face-to-face, out of the office, gives clients an opportunity to see your human side, rather than just your office game face. The connections are palpable and the opportunities for them to get to know you better and introduce friends grow substantially.

The key is to communicate in an honest way, even though it may leave you feeling a bit vulnerable. It is this human element that allows clients to feel comfortable giving you feedback during both the good and the challenging times.

Additionally, you’ll have made many deposits into their “relationship account” that you may need to draw from when times get tough. These ties allow you to do your best work, allowing them to stay the course to reach their goals.

Yes, many touches sounds like a good strategy, but do not let “touches” replace the authenticity of real, sincere relationships. Please, for your own sake, avoid the communications arms race by simply being there, and being venerable with your clients. If you do it, I am certain you will reap the many benefits.


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