Several months ago I wrote an article, “Why Clients Fire Advisors,” in which I outlined what I consider to be the major reasons clients do not retain their advisors. It seems to me that it is only appropriate that a follow-up to that article should be a discussion of the major reasons clients keep their financial planners. Why is it that some firms retain almost 100% of their clients while others find themselves constantly searching for prospects to replace the 10% to 20% or more that seem to leave every year?

I have had conversations with principals at both types of firm and have come to some conclusions. While these examples are anecdotal, there are common strategies and attitudes that the elite firms consistently employ while the others either ignore or sporadically implement. And the difference between retention rates of 98% and 90% can amount to hundreds of thousands of dollars over the years. When one devotes a large percentage of time to acquiring clients, it may further affect the ability to retain existing clients. The following strategies are from the observations I have made that could have a significant impact on client retention.

• Elite firms communicate realistic expectations to their clients. They are honest about what they can and can’t control. They do not claim to consistently “beat the market.” While they tell their clients that diversification may reduce volatility, they honestly tell them that it will not eliminate it. When potential clients come to our firm and complain about losses they experienced during market corrections, more times than not their dissatisfaction with their current advisors is that they communicated that they had the ability to avoid these losses. When they could not deliver what was promised, they lost their clients. We honestly tell them that if what they’re looking for is an advisor that has the ability to avoid market losses, they may need to continue looking. The major reason advisors who communicate realistic expectations retain their clients is not that they experience higher returns but that their clients understand that advisors do not have the ability to control market volatility and they are told what to expect.

When clients understand this, they are much more likely to retain their advisors.

• Good financial planners keep their clients from making foolish decisions and mistakes. While it may seem very basic to counsel clients not to sell in the middle of market downturns, we do see advisors who panic along with their clients and the results are often disastrous. In early 2010, a new client hired us after experiencing major losses during the market crash.

He called his advisor in early 2009 and instructed him to sell all of his equities. Rather than convince his client that this would have been a major mistake, he simply complied and our client did not experience the major recovery of 2009. His losses became irrevocable. We told him that clients who made those calls to us and needed to have the recovery when it eventually came were told that we could not in good conscience adhere to our fiduciary obligation to them if we did that. We always communicate to our clients that they may like us more when the market is doing well, but we will be worth more when it is not. So this particular client fired his other advisor because he was not strong enough to refuse to implement the decision that was clearly not in the client’s best interest. In late 2009, we got a call from one of our nervous clients who thanked us for not panicking.