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Of course, you have to market to your clients. But to what end?

Start with this fact: there is no such thing as 100% client retention.

Three reasons they leave are poor investment advice, bad service, and poor communications from their advisor. My Client Relationship Retention Formula was built to handle these three issues.

People die, move away, divorce. Some leave because “It’s not a good fit.”

But there are some other issues that influence retention you now need to take into account.

Overall Retention Rates

You must prospect some or you have a dying business. There is no such thing as “being done.” But the better job you do with client retention, the less you have to prospect.

You should read “Stay or Stray: Putting Some Numbers Behind Client Retention,” a study by the Canadian practice management software firm PriceMetrix. According to their website, they “collect and analyze wealth management data to improve the business performance of wealth management firms and their financial advisors while creating a better client experience.”

I found the “Stay or Stray” white paper looking for something else. How I missed it earlier I have no clue.

Retention Rates: What to Expect

Let’s first take a look at overall retention rates. According to the report, “the median advisor in 2013 retained 94% of households. The advisor at the 10th percentile retained only 84% of clients, while the advisor at the 90th percentile retained 98%.”

If you are exactly at the median and have 300 clients, you lost 18 households in 2013. But if you are at the 90th percentile, you lost six. At median level, you would have to have major prospecting going on just to stay even.

What if 2016 turns into 2008? According to the PriceMetrix study, “While the top half and median rates of attrition were in line with historical norms, many advisors had retention rates below historical norms. The bottom 10% of advisors lost nearly one in five of their client relationships in 2009.”

For a long time, I have recommended that before an established FA launch a prospecting campaign, put systems in place to strengthen client retention.

Close the barn door before you go out and rustle some of your neighbor’s cattle.

Vulnerable Clients

One of the most fascinating conclusions of the PriceMetrix study is what I would call a “vulnerability window.”

“Our analysis indicates that the conditional probability of retention at first decreases only slowly. The probability of retaining a client in the first year is high (0.95 at 12 months). There is a ‘honeymoon’ period in wealth management advisor/client relationships! The probability of retention decreases between 12 and 48 months — from 0.95 to 0.74. It appears that it is during this time clients determine whether the advisor relationship meets their needs, and if not, they decide to leave. Around the 48-month mark, retention tends to stabilize, with the probability of retention decreasing from 0.74 at 48 months to 0.70 at 60 months… This suggests that clients who have remained with their advisor for five years have by this time elected to remain for the long term.”

This suggests a strategy, doesn’t it? At a very minimum, it says:

  1. Arrange your database so you can see clients who came on in the current year (Year 1) and through Year 2, Year 3, Year 4 and Year 5+.
  2. Focus retention marketing on clients in Year 4, then Year 3, then Year 2, Year 1, then 5+.

Assets and Retention

Here is another key finding: “The data reveal that, as household assets increase, the probability of retention increases. Households with less than $250,000 in assets are notably less likely to remain with their financial advisor than those with greater assets.”

More strategy: (1) Absolutely pursue new clients with more than $250,000. (2) Become sole provider for all clients. (Hint: some of your little accounts are big accounts somewhere else.)

In my view: if a client asks you to help his nephew who has $25,000, should you do it?

Absolutely. Refuse a referral to a small account and you will likely not get a referral to the next one, Uncle Harvey who recently sold “Harvey’s Plumbing Supply” for $6 million.

“Stay or Stray” posts this caution: “Advisors should therefore be mindful of the time and resources they devote to small clients given their reduced likelihood of staying. More importantly, advisors should recognize the often imperceptible damage that small clients can cause to relationships with larger clients.”

The implication of this is: off-load small clients.

I have ranted against this “book pruning” notion since 1990. It’s advocated by almost all gurus and consultants and embraced by all the major firms. It is based on the 80–20 “Pareto Principle.”

Even if Pareto is a sound economic principle and you should throw small clients off the bus — and I have anecdotal evidence against this — I would still rail against it.

I think it is unethical to kick someone out who gave you his or her trust, perhaps even helped you come to the party. I think it is bad for the industry. Book pruning generates tremendous ill will. No one wants to be sent to a call center. Finally, you can manage a large book of small clients if you get a junior advisor.

Deeper Relationships

The PriceMetrix study states: “Our analysis also revealed — not surprisingly — that clients with deeper relationships with their advisor are more likely to be retained; those with thinner relationships are less likely to be retained.”

In thinking this through, I think there is a strong possibility that number of accounts is an objective measure of an obviously subjective relationship: “depth.” How strong is your relationship?

What we are measuring here is, I believe, trust. The deeper the relationship, the greater the trust, the more willing the client is to put all his or her eggs in one basket.

The strategy then becomes: get as many accounts open as soon as possible.

If you have not started doing that yet, start with clients who became clients four years ago. They would appear to be most vulnerable.

Marketing Objective

According to me, the objective, purpose, mission, call it what you will of client marketing is: become or remain sole provider for all clients who are decent people and follow advice.

Of course you want to deal with pleasant people who do what you tell them. Who wants to struggle all day with sour, unpleasant people who argue instead of taking your advice?

Of course you want all the assets. You won’t rest easy knowing your biggest client, Velda Oldebucks, is having her hand held by “that nice young woman at the bank.” And your heart certainly skips a beat when another big client, Bob Barking, tells you he bought 100 bonds from a pleasant young man at MerrillMorganUBSWellsPartners.

You want all the assets and you want to keep the client forever.

Ultimately, this means if the client’s stupid brother-in-law Wayne says, “Kelly, I think we should put some money in a new franchise, Lifetime Tanning and Body Sculpting. What do you think?” Kelly replies, “Sounds interesting. I’ll check with Mel first” (Mel being you, of course).

I have been encouraging clients to strive for “sole providership” for a long time.

You can do far worse than start with the clients in Year 4 and “Find all outside assets held by the client so they can be moved to FA management.”

The PriceMetrix study said it more scientifically: “when advisors (often correctly) surmise that they have only a share of a client’s investable assets, they should endeavor to increase their share, since doing so improves the prospect of retaining that client.”

— Check out The Best Minimum Account Size: Zilch on ThinkAdvisor.