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.
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:
- 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+.
- 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?