Client loyalty helps in poor markets and with referrals.

Note: This is the second in a series of articles examining the characteristics of advisors who earned a minimum of $1 million per year in each of the past three years.

    Last month we introduced the Elite 1200-the approximately 1,200 financial advisors in the United States who consistently earn $1 million or more a year in income. And we identified three of the core competencies possessed by the Elite 1200 which, if mastered by other advisors, can lead to greater levels of success and effectiveness. They are the ability to:
    Source new high-net-worth clients from existing clients and other influential professionals,
    Foster a loyal and lasting relationship with those clients, and
    Capitalize on the relationship so it becomes comprehensive in scope, delivers satisfactory results and eventually accrues fiscal benefit to both parties.
    In last month's column we examined the need for an ongoing pipeline of potential clients and the importance of referrals to the client acquisition process. The Elite 1200 augment their existing client roster with other sources for referrals and form strategic partnerships with centers-of-influence, such as trust and estate attorneys and accountants. In addition, they structure and govern their professional arrangements, and then rely heavily on those partnerships to deliver quality client referrals. In this month's column, we will examine the second of the Elite 1200 characteristics-client loyalty-and the role it plays in both the sustainability of the client/advisor relationship through difficult market conditions and poor performance and the client's willingness to provide more assets and referrals to the advisor.

Creating Loyal Clients
    The Elite 1200 have learned that a happy and satisfied client is a loyal client, and a loyal client can have a significant and quantifiable impact on an advisor's business. As a result, the Elite 1200 are adept at creating loyal clients. Why? Many reasons, some of which we explain here. Loyal clients are advocates for their advisors and are responsible for generating more new business referrals than their less-satisfied counterparts. In fact every six months, nine out of ten satisfied clients refer at least one person who becomes a client. (Source: The Millionaire's Advisor, Prince & Van Bortle, Private Asset Management, 2005.)
    And loyal clients provide advisors with more assets to manage. One in four satisfied clients give additional assets to their advisor each year to manage and oversee without prompting. We believe this number can increase with some careful management and communication on the part of the advisor. (Source: The Millionaire's Advisor, Prince & Van Bortle, Private Asset Management, 2005.)
    Loyal clients are also less inclined to take assets away from an advisor, or to terminate the relationship entirely, even when investment performance is substandard. Loyal clients are tied to their advisors through high comfort levels, long-term success and a personal relationship that allows the advisor additional time to address performance issues and rectify problems.
    Unfortunately, our research reveals a disconnect between clients and advisors when it comes to satisfaction and loyalty. In a recent study with 512 financial advisors, an astounding 79.3% of them believe that more than three-fourths of their clientele are satisfied. When a similar question was posed to the clients themselves, the exact opposite was shown to be the case. In fact, only 27% classify their advisor as "excellent" and their satisfaction as "high," which leaves 73% of clients receptive to other advisors.
    These findings have sobering implications for advisors. At any given time, roughly half of clients are susceptible to the advances of another advisor or could instigate a departure themselves. Advisors must increase their attention and focus on these clients or risk losing them. They also must adopt an overarching policy to cultivate loyalty among their most important and profitable clients, to secure their happiness and satisfaction and cement the relationship.
    The good news is that cultivating loyalty is not the exclusive domain of the Elite 1200, but can be achieved using a systematic process that can be adapted by all advisors. One effective methodology is known as the "6C" framework, derived from research with high-net-worth individuals on the qualities they rate most important in an advisor.
    Among them is character, which refers to the integrity and reliability of the financial advisor. Ask yourself if you would want to work with someone who lacked character. Or entrust your finances to someone with questionable ethics? The probable answer is no and, not surprisingly, neither would the affluent. They want an advisor with the character and the ethics to earn their business.
    Chemistry is the ability to connect with the wealthy. The affluent prefer financial advisors who can naturally relate to them. This does not mean that you must befriend your clients or socialize with them. But the more you share a mindset about goals and objectives, the more synchronized your relationship and the more trusted you will be.
    Caring is the advisor's ability to demonstrate an interest in clients as people, rather than the sum of their assets. Investors want to know that you share a concern for their well-being, and will put their best interests above making money. Being able to articulate a client's concerns and aspirations is an effective way to demonstrate caring.
    Competence refers to the expertise and technical proficiency that a client seeks on financial and investment matters. High-net-worth clients can work with anyone they choose, and they want to work with leaders in their field. These clients are also willing to pay for services, but they expect those services to be innovative and state-of-the-art.
    Consultative refers to the advisor's ability to interact with and serve each client in an individualized way that responds to his or her needs and concerns. Being consultative often means listening before speaking, and offering customized recommendations rather than canned solutions. It means working with the client to understand everything about their financial situation, both positive and negative, assets and liabilities, and not just taking orders and executing trades. It's important to note that being consultative is the most powerful of the six "Cs" in creating loyal clients.
    Cost-effective is being certain that the products and services utilized in delivering client solutions make economic sense. The issue at stake here isn't really cost, but value. Unfortunately, most financial advisors fail to communicate the value of their offerings and, consequently, let the matter become one of price. Again, wealthy individuals care less about cost than they do about getting what they pay for.
    Each component of this methodology is tactical, which means you can create loyal clients by enacting the sets of behaviors that result in an affluent client identifying you as caring, competent, consultative and so forth. First, you must identify those clients who deserve this type of commitment, along with those individuals who can become more important parts of your business with additional focus. Once you have loyal clients, you have stabilized your business and are in a position to expand it significantly-something the Elite 1200 have already experienced.
    Most advisors tell us that they want to grow their practices and earn more money. If you share these goals, and are intrigued by the financial rewards of the Elite 1200, there are two proven methods to increase your effectiveness: forge strategic partnerships with similarly capable professionals who can provide regular access to desirable high-net-worth prospects, and focus on engendering satisfaction and loyalty among your most important clients. These efforts will create the foundation for a strong and prosperous business, and the circumstances that will enable you maximize your relationships with enthusiastic clients moving forward.

Hannah Shaw Grove is the author of five books on private wealth and advisory practice management. Russ Alan Prince is president of the consulting firm Prince & Associates.