The Secret to Client Retention

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

Start with this fact: There is no such thing as 100 percent client retention.

Three reasons they leave are:

• • • • • • Poor advice;
          • Bad service; and
          • Poor communications.

Of course, some clients die, move away or divorce. Others simply leave because it was not a good fit.

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

Before I address those, I should say this: You must prospect or your business will die. There is no such thing as “being done.”

But the better job you do with client retention, the less you have to prospect.

Related: 3 ways to retain clients and grow your base

Retention Rates: What to Expect

According to a study by the Canadian practice management software firm PriceMetrix: “The median advisor in 2013 retained 94 percent of households. The advisor at the 10th percentile retained only 84 percent of clients, while the advisor at the 90th percentile retained 98 percent.”

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.

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.”

Related: The communication imperative for advisors

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+.