Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Communicate – before it’s too late
Do you know the name of your number 1 client? I am sure you do. What about the name of your number 20 client? Or your number 43 client? Many might struggle to come up with those names on the spot. Whilst these may seem like random numbers, let me explain why it is important to know.
To develop our program, ‘The Golden Hour’, we partnered with R.A Prince and Associates[1] to study 405 financial advisers. Results of this study revealed that the percentage of Anchor Clients —those clients that advisers considered vital to the financial viability of their practices — is 22.8% of an adviser’s client-base. Research shows that advisers work with a total of 189 clients on average, which means 43 of those are considered ‘Anchor Clients’.
As advisers, you want to do everything in your power to preserve all your Anchor Clients, which makes a lot of sense, they are responsible for most of your income, and it is an obvious goal to give them most of your time and care. Yet that goal is difficult for most advisers to achieve, which can lead to a steady rate of loss of your most profitable clients. In fact, 72.2% of advisers lose at least one Anchor Client per year.
The root of this problem is that many Anchor Clients are not getting the attention they desire, meanwhile advisers are working hard to deliver on this. So, why the disconnect? In short, advisers do a great job with their top 10 clients, they know them well, they stay in touch constantly, the top 10 are a manageable number to keep front-of-mind.
What we have learnt though is that Anchor Clients extend, on average, to client number 43. That puts clients 11-43 at risk of neglect, which is where our greatest threat of client loss lies.
Research has found that many advisers shift into reactive modes of communication with those clients who are not in their top 10. By only communicating in a reactive manner, we have this false sense of security that if you aren’t hearing anything from those clients, and investment performance is good, then things with your client must be going well. That is not necessarily the case.
We surveyed 181 clients who had recently left their financial adviser and almost 80% of those regarded their investment performance as either “good” or “superior”, which shows performance was not the problem or catalyst for them leaving their adviser – it was the relationship, or lack thereof.
So how do we create an interpersonal, yet efficient, communication strategy to ensure we are meeting the communication needs of all our Anchor Clients? Our research confirms that even a little bit of communication goes a very long way. “Intense” and “high” levels of communication preserves clients, but it turns out that even “moderate” levels stop Anchor Client’s leaving. In fact, clients are more likely to add assets and make referrals when receiving “moderate”, 4 communications per year, from their adviser.
Invesco Global Consulting has built an effective communication strategy we refer to as the “cure for Anchor Client loss”. A regular, disciplined interactive strategy which recommends the following as the best use of those 4 annual communications with clients:
1 x Annual client review
2 x Check-in calls
1 x Harvesting concerns
We found advisers struggle the most with client check-in calls, particularly when it came to preparing for and executing these calls. There is an art and science to making these effective, because if all we do is just ‘check in’, clients will rapidly check out.
We found that we could create significantly greater impact in these calls if we follow a three-step process:
- Demonstrating personal knowledge
Show your client that you have listened in past conversations, you remember the issue, and that you care.
- Monitoring for client changes
One of the strongest value propositions we can tap into is our vigilance in monitoring for changes in our client’s lives, compared against changes in the markets and advising on any logical changes.
- Set expectations for follow-up
When your client brings up a change, you want to address it in an appropriate time frame. It is key to remember that one of the greatest trust builders is to follow-through on what we say we are going to do.
When it comes to communicating with your clients, the more personal your communication, the more powerful it is. Not mass emails, not newsletters, not generic performance updates. The simple truth is that personal communication shows you know them, shows you care and that your client is at the front of your mind.
Invesco Global Consulting is a unique resource that exists to help advisers in the three areas all advisers consistently focus on – winning new business, retaining existing clients and growing their wallet and market share. We focus solely on the importance of the client relationship, methodically researching the language of our industry and the emotions associated with it to create actionable and implementable practice management and business strategy programs, assisting advisers across Australia.
[1] R.A. Prince and associates is a leading researcher and expert on the private wealth industry and adviser-client relationship.
