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Financial Planning > Behavioral Finance

4 Ways to Keep More Clients

By Emily Zulz

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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:

Expectation management

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.

Risk tolerance

2. Risk tolerance

Risk tolerance is another big opportunity for the advisor to retain clients, according to Lover.

Advisors need to understand how much risk an investor is willing to take, and then they should use that risk tolerance to set expectations on returns.

“If you’re only willing to handle a certain level of drawdown then you shouldn’t have the expectation that you’re going to beat a benchmark that’s completely invested all the time, right?” Lover said.

He also stressed that advisors should ensure all parties of the account are accounted for when assessing risk tolerance.

“My wife’s risk tolerance may be far different than mine on our joint account, and that needs to be accounted for and hit head-on so the expectations of that account can be managed properly,” Lover explained.

Goal tracking and progress reporting

3. Goal tracking and progress reporting

Advisors should tie goal tracking and progress reporting into their offering, according to Lover.

“Constantly reminding clients how they’re doing toward their goals and shifting the focus off of achievement of performance – that you need to hit those goals rather than what the market is doing,” Lover said.

Because so many clients leave within the first two years, Lover said, it’s important that clients “really understand” what the advisor is offering.

“The key is that you can’t stop selling your services and what value you bring to the advisor in the first two years,” he explained. ”Just because they open an account with you doesn’t mean you should stop ensuring they 1) are satisfied and 2) know everything you can offer and 3) feel valued. After you get past that two-year mark, the account closure rate dramatically drops off.”

Financial planning

4. Financial planning

Financial planning is a really big lever to lower account closure rates, according to Lover.

 “We saw account closure rates drop [significantly] when an advisor is actively using a financial plan as part of the model on customer service and support,” Lover said.

Trust Company of America looked at the advisors who offer financial planning and found that the account closure rate dropped to 3% or less. This is significantly less than the 7% to 10% closure rate for all advisors.

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