A simple 2% increase in customer retention can create as much revenue as decreasing operational costs by 10%, according to Mike Lover, senior vice president of key accounts at Trust Company of America.
“If [advisors] get really good at retaining and satisfying the people they have, they could have a dramatic impact on their practice,” Lover told ThinkAdvisor.
Most advisors feel they get fired related to performance, but it’s actually really nothing to do with performance.
According to a study conducted by The Spectrem Group, the four most highly cited reasons that investors worth between $1 million and $5 million leave their financial advisors are service related, which include not returning phone calls (61%); not proactively reaching out (53%); not providing good ideas and advice (48%); and not returning emails in a timely manner (46%).
Trust Company of America, an independent RIA custodian offering fully integrated real-time technology, consultative services and back-office support built exclusively for RIAs, did its own research on client retention.
Typically in a calendar year, Trust Company sees between 7% and 10% of account holders leave their advisor. Of those, about 45% leave in less than two years.
“They’re leaving in the first 24 months because there’s a misalignment on service and performance expectation,” Lover told ThinkAdvsior.
ThinkAdvisor talked with Lover about four ways advisors can improve their customer service and retain more clients:
1. Expectation management
When working with new clients, advisors should start with expectation management.
“Investors in general are overwhelmed with information and they have misaligned expectations on performance,” Lover said. “Beating an index seems to be the new benchmark, yet if you look in history there are several periods of time where performing at the index wouldn’t be acceptable.”
Because investors are surrounded with noise, Lover said that the advisor’s role should really be focused on setting expectations up front on the suite of services he or she provides outside of portfolio management.
“It’s more about ‘here’s the whole suite of things that we can do to support you on your financial goals holistically,’” he said.
Advisors should also clearly define their role as the financial coach and educator in the relationship, he added.