(Photo: Thinkstock)

Asset-based pricing and managed money were meant to put the client and the advisor on the same side of the table.  Many advisors found they were being paid for doing the right thing — advising clients to sit tight with long-term holdings instead of doing short term trading. Others found they were being paid the same regardless of the amount of attention the client received.

The Seven Deadly Sins

McKinsey/Pricemetrix produced a study analyzing client retention between 2009 and 2013. In those years, 7-10% of an advisor’s clients left annually. Better advisors retained more clients. In 2013, advisors in the 90th percentile retained 98% of their clients while advisors in the 10th percentile retained 84%.

Here’s my personal list of the seven deadly sins some advisors commit that lose them clients  while using fee-based platforms.

1. Lack of contact. Some advisors rationalize they will be paid the same regardless of the attention they give their fee-based clients. They are rarely in touch, rarely rebalance and rarely evaluate the performance of the money managers.  They might rationalize:  “If my clients want something, they will call.”

Meanwhile … Competitors are calling. They might lead with the question: “When was the last time you heard from your advisor?”

2. Assuming clients don’t open statements. When the market is volatile, some advisors don’t want to be accountable. They avoid calling clients to schedule quarterly portfolio reviews. They rationalize: “Let sleeping dogs lie.” and “If it ain’t broke, don’t fix it.” They assume clients don’t open their statements or track performance.

Meanwhile … When a competing advisor calls, they might ask: “How has your advisor done for you lately? Not sure? I would be glad to help by looking over your statements and tell you.” If you don’t discuss performance, someone else will.

3. Thinking, “They know what I do for them.” Human nature is interesting. Clients may be thinking: When the market is doing well, the advisor is simply doing their job. When the market declines, it’s the advisor’s fault. They don’t know you are working just as hard in the background reviewing their holdings and determining if sitting tight or making changes is the best course of action.

Meanwhile … Competitors might say: “In volatile markets we try to have quarterly portfolio reviews with each client to discuss their investments relative to their goals. When was your last quarterly review?”

4. Avoiding discussing pricing. Many firms have revised their fee structures over the past several years. Few advisors want to call a client and say: “Fees are going up.” They hope clients won’t notice or they blame it on the firm if the client starts asking questions. They rationalize that “clients know I don’t work for free.”

Meanwhile … Their accountant might say: “Your investments grew by X percent last year.  Do you know how much money it cost you to get that X percent return?”

5. Pretending to work. Realizing they will be paid regardless, some advisors go into their own version of semi-retirement. They come in late, take long lunches and leave early. They take many vacations. They work from home on Mondays or Fridays. Routine client contact is dumped onto their sales assistant who must explain the advisor’s absence. Clients wonder why they can never get their advisor on the phone.

Meanwhile … The sales assistant rationalizes they are doing almost the same job as the financial advisor while earning a small fraction of the advisor’s compensation. They are overwhelmed with the extra work. They quit.

6. Failing to prospect. The advisor realizes fee-based accounts give them a stable income.  As long as they keep these clients happy, they don’t need to look for new clients. They stop prospecting. When their manager says they haven’t opened a new account in twelve months they indignantly say they are spending all their time serving their current clients. They are too busy to prospect.

Meanwhile … Clients die. The spouse moves the account or the assets are disbursed to distant heirs. Clients relocate to another state when they get promoted. They move their accounts because they prefer a face-to-face relationship. Natural attrition occurs.

7. No succession plan. Some advisors love the fee-based model so much they intend to work until they are carried out feet first. Many clients look forward to a change of life as they enter retirement. They assume the advisor is doing the same. They consider making a change of advisors early because they know their advisor isn’t going to live forever. The advisor has made no plans for what happens next.

Meanwhile … Another advisor explains they have a multigenerational team. The senior advisor will work with the client, yet the relationship will gradually shift to their children, who are also part of the practice. This will happen over several years as the advisor transitions into retirement. “We’ve got you covered. You will get seamless service.”

In all these cases, short-term thinking can get the fee based advisor in trouble.  However, the examples of competitor behavior can serve as a model for the fee-based advisor to try pivoting and retain those clients.

— Related on ThinkAdvisor:


Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” can be found on Amazon.