Written by: Ken Haman
In 1967, Sanford Bernstein had a great idea: combine disciplined research with institutional-quality money management and package it for uniquely successful families. When he first executed his concept, it was met with more than a little skepticism. Today, this powerful combination of research insights and advanced investment strategies is commonplace—a testament to Bernstein’s creativity.
Key Strategies for Building a Business
Bernstein knew that if his firm managed money well and explained how the capital markets work, he would attract successful individuals and families who wanted greater confidence in their investment outcomes. He also knew that once they were clients, managing their emotional reactions to the markets would be the key to retention. He balanced his vision of growing the business organically with the critical importance of keeping what he had already built.
For Bernstein, the way to manage client emotions was to give each person a vivid experience of the future. He felt this would instill a deep confidence in the firm as a superior provider. Bernstein felt so strongly about this strategy that even when there were dozens of client-relationship managers, he would still meet with every client during the onboarding process and have a short but powerful conversation.
After getting to know the client a bit, Bernstein would shift gears and execute his strategy by saying, “It’s important to me to personally welcome each new client who joins the firm. We are glad you chose us as your advisor. Like most clients we work with, you are eventually going to want to refer your friends and family members. And while I want you to refer to us, I don’t want you to do that until you have experienced a full market cycle with us.”
There’s a lot of relationship artistry in these few sentences. Let’s look at Bernstein’s strategy.
What’s Going on Here?
1. He makes a personal connection: “It’s important to me to personally welcome each new client who joins the firm.” After just a few years, Sanford Bernstein was an iconic figure in the New York marketplace and could have delegated onboarding to his client-relationship managers. He didn’t. Instead, he greeted each new client.
2. He gets them thinking about making a referral to the firm: “Like most clients we work with, you are eventually going to want to refer your friends and family members.” In behavioral finance, this is called priming: gently instilling the idea of making a referral. This inevitably causes the other person to make a mental image of doing just that. In fact, the client has to think about making a referral in order to understand the sentence.
3. He tells them to not make a referral “until you have experienced a full market cycle with us.” Bringing up the idea of a referral makes perfect sense to anyone who has just started a new relationship; they are excited and feeling very positive about the decision. But telling them not to make a referral stimulates feelings of surprise.
When human beings are surprised, the brain automatically goes on high alert. The result is that the new client now pays intense attention to the earlier sentence (“you are eventually going to want to refer”) and the end of the last sentence (“until you have experienced a full market cycle with us”).
Bernstein would close his part of the meeting by educating the client about the nature of the business cycle and by managing their expectations. This way, the client had an experience of the future that included the possibility of negative returns. This strategy allowed the advisor to continue the educational process and establish her role as a leader who knows more than the client about how capital markets work.
As the relationship developed, if markets advanced, the advisor and the firm enjoyed the success. But when markets fell, the client was emotionally prepared and more likely to stay long enough to enjoy the recovery part of the cycle.
As we start the new year on the back of three years of robust returns (even with the pandemic), consider offering your clients their own experience of the future.
For a deeper dive into how financial advisors can manage client expectations and build trust in the face of a maturing market, reserve your spot in the next AllianceBernstein Advisor Institute webcast on February 9th or visit https://alliancebernstein.com/go/abai for additional resources.