For Great Financial Advisors, the Profit is in the Relationship
The industry pressures that have weighed on financial advisors over the last few years will continue into 2021 and beyond, especially with the lingering effects of the pandemic. Fee compression, increasing regulation, heightened competition, and the commoditization of services are all part of an inevitable trend that threatens the survivability of many advisors. From now on, advisors who fall short of clearly differentiating themselves will have a difficult time bucking the trend, and advisors who fail to put their entire focus on their client relationships may be doomed.
Unfortunately, many advisors learn too late in their careers what I have stressed numerous times—that this isn’t a money business. It is a people business! For the first several years of an advisor’s career, the focus is almost solely on acquiring product knowledge, investment expertise, and planning skills. While that is essential for building necessary competencies, too few advisors come to realize that money management is not the lifeblood of their business—their clients are.
For financial advisors, the profit is not in the financial analysis or the transactions they conduct; it’s in the relationship.
Healthy client relationships start with a strong personal connection.
Of course, clients care about the knowledge, skills, and abilities advisors have that will help them achieve their goals. According to a Vanguard study, factors such as portfolio management and financial planning contribute to 59 percent of the perceived value they place on financial advisors. But that’s the commoditized side of the business. All advisors market themselves as skilled and knowledgeable, but there’s no differentiation. To clients, that’s just table stakes for advisors even to be considered as worthy of their money.
However, the same study found that such factors as trust, personal connections, and other emotional factors account for 41 percent of an advisor’s perceived value. While they value an advisor’s ability to map out a financial plan and construct an optimal portfolio, it’s the emotional value of the relationship that’s linked to a client’s peace of mind, and that can make or break a deal. Fortunately, this is where financial advisors can differentiate themselves, but it requires a significant shift of their focus from the money side of the business to the relationship side.
Do you want to be a good or great Advisor?
Frankly, good financial advisors are a dime a dozen. But, according to an SEI study, clients aren’t looking for good financial advisors; they’re looking for great advisors. The best clients demand excellence from their advisors, which shows through not just in good returns, but also through the way advisors make them feel about the relationship. Great advisors differentiate themselves by putting their client relationships above all else, and it shows. That’s what increases the lifetime value of a client, which is where the profit is.
Here’s what you can do to build profitable, long-term relationships with your clients:
#1. Create an exceptional client experience
Great advisors are entirely client-centric in how they approach their business, doing what they can to provide an exceptional client experience—one that is both memorable and referable. That includes unfettered access to their advisor, prompt responses to emails and phone calls, personalized communications, touching base just to check in, and anything else to instill a sense in their clients that their interests are paramount.
#2. Show your clients you care
You’ve heard it many times, but it bears repeating: Your clients don’t care about how much you know until they know you care. You can be the smartest advisor in the room, but if your client doesn’t get the sense that you are in this journey with them, they may eventually look for an offramp.
Genuine caring means always being an active listener, which is more than doing less talking than your client—though that’s important. It’s asking questions that demonstrate a deep interest in their lives—”Tell me what’s going on,” or “How is Johnny’s team doing?” or “Do you have any special plans for your upcoming wedding anniversary?”
You can develop an even deeper connection with your clients by inserting any common experience or interest you have into the conversation.
#3. Go above and beyond
Great advisors are all about the value-add. They are constantly on the lookout for their clients’ best interests in all aspects of their lives. For example, if a client is looking to make a real estate purchase, offer to help them vet a real estate broker in the area. Or, if they tell you about a charity event they’re working on, offer to volunteer. By going above and beyond with your clients, the relationship progresses from professional to personal, which is what they want.
#4. Always Remember What Business You’re In
Great financial advisors are not in the investment business; they’re in the people business, 24/7. If it doesn’t have anything to do with starting, cultivating, or building great client relationships, it can be delegated or outsourced. You’re in the business of improving people’s lives, but you can’t do that unless you have enduring and trusting relationships.