How Advisors Can Add More Share of Wallet

It goes without saying that the vast majority of registered investment advisors (RIAs), particularly those operating under fee-based models, want to manage as much client capital as possible.

It’s pure capitalism at work and there’s nothing wrong with that. The large a firm’s assets under management (AUM) tally is, the bigger its revenue base becomes and, at least in theory, the more its profitability is enhanced.

Of course, getting to elite status is easier said than done. Same goes for getting clients to park more of their assets with a single practice. As advisors know, in many cases, clients aren’t allocating 100% of investable assets with that practice. Many clients, particularly those in the high and ultra-high net worth demographics, maintain discretionary trading accounts, real estate and other assets that their advisors know about but do not manage.

There’s nothing wrong with clients spreading assets around. Nor is there anything inappropriate about advisors wanting to those clients to park more of those assets with their practices. Of course, this task is much harder than simply asking a client for more money, which is off-putting unto itself.

Fortunately, there are strategies for building wallet share.

Building Wallet Share Means Building Trust

It’s intuitive that in order for an advisor to command more assets from a client, trust must be established. That’s something advisors cannot lose sight of.

“To date, there has been very little advice regarding other approaches that might be more effective,” according to FlexShares. “One reason is that increasing wallet share requires advisors to understand and accommodate deep-seated client emotions that drive their behavior. Much of this revolves around how trusting a client is. While the trust factor is a key element of gaining wallet share, understanding trust can be tricky and interwoven with other emotional factors.”

As is the case with any relationship, how advisors build trust varies from client to client. However, one element that is uniform is understanding each client’s relationship with money. As advisors well know, some clients come into wealth by inheritance.

Others do so via building businesses or high-level careers. Then there are retirees, younger clients just starting and everyone in between. Point is everyone is at a different point on their financial journeys and as such, their financial needs and views are likely vary relative to the next client.

“New FlexShares behavioral research into investors’ existing beliefs, fears, past experiences, and capacity for trust suggests it’s possible to segment clients into five distinct personas based on how their emotions drive behavior related to how they allocate assets to advisors,” adds the fund issuer. “Understanding how the key characteristics of these personas affect client advisor allocation decisions can guide advisors to the conversations and actions necessary to build deeper, longer-lasting relationships — ones that ultimately can lead to winning a greater share of their clients’ wallets.”

Understanding the Five Personas

Further confirming that there are deep elements of behavioral finance involved with wallet building, FlexShares highlights five personality types advisors are likely to find among their client bases. Those are as follows: Protectors, competitors, collectors, verifiers and simplifiers.

Not surprisingly, protectors are risk-averse. Owing to that aversion, they’re likely to invest on their own or look for lowest fee advisor. Competitors are also likely to invest on their own and they’re likely to pepper advisors with questions about their performance relative to benchmarks while inquiring about specific investments. Managing competitors’ money isn’t impossible, but advisors should be prepared for an inquisitive clientele among this group.

Collectors live up to that label because many spread assets around multiple advisors. As such, they’re brand and strategy aware. When it comes to dealing with verifiers, this is where the aforementioned points about trust come in because these folks are looking for long-term, trust-based relationships where, as more trust is accrued, they’ll deliver more assets to the advisor.

Finally, simplifiers are highly desirable for advisors because they want to keep things simple. The easier an advisor can make things for this client, the more likely the client is to bring more cash to the table and embrace a long-term relationship.

“Understanding how emotions and beliefs translate into the traits found among clients can help advisors tailor their approach to match each persona. What works with a Competitor might not work with a Simplifi er, and vice versa. But when you understand the emotions that drive each client’s behavior, you can better mitigate their fears, target their needs, and build longer-lasting relationships that lead to a greater share of their wallets,” concludes FlexShares.