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.