Happy Clients, Happy Advisors. Avoid These Missteps.

In life and in business, there are occasions in which knowing what NOT to do is as instructive and valuable as knowing what to do. Arguably, there’s value in that sentiment for advisors.

After all, knowing the mistakes and pitfalls to avoid can be valuable when it comes to client retention. Of course, batting .1000 when it comes to client retention is easier said than done, but there are steps advisors can take to ensure clients are satisfied.

In reality, investment management acumen, or lack thereof, isn’t the biggest reason clients reduce or eliminate relationships with an advisor. Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. One way of looking at that is that clients are focused on more than just returns. That can be a positive, but it doesn’t imply clients aren’t focused on financial issues. They are.

Advisors: Client Satisfaction Standards Vary

Recent research from Morningstar confirms that clients have different reasons for parting ways with an advisors and, perhaps surprisingly, lagging investment performance – though a reason to be sure – isn’t the preeminent factor in a client firing an advisor.

Among the financial reasons why clients ditch an advisor are costs. As in the cost of the service you provide. Clients understand that you’ve got to make a living, too, but not being transparent about fees and exactly what clients are paying for is a recipe to lose business.

Then there’s the issue of quality. Of course, this can be taken to be mean quality of performance and service delivered by the advisor, but clients perceive quality in other ways. As the Morningstar research suggests, clients are very much evaluating advisors based on quality of communication and quality of the overall relationship.

Quality of communication, which lends itself to bolstering quality of the overall relationship, shouldn’t be a burden. It should be an everyday practice and it should not be about asset gathering. Think calls for updates on clients plans for kids’ college, home renovations or following major life events, such as death of a spouse or parent.

Financial Matters

Regarding investment performance, it is important to clients. Obviously, the matter of investment performance is a sensitive one. Clients demand excellence on this front, but advisors cannot see the future. Nor should they make grandiose promises that are hard to keep. If anything, it’s better to under-promise and over-deliver.

Some clients want more encompassing advice and those that don’t feel as though they’re getting it are likely to fire the advisor. Likewise, clients that feel a disconnect between performance and product/strategy education are likely to be unsatisfied clients.

“Responses that fit into this category were pointing to a gap between what an investor was looking for in their relationship with the financial advisor and what they actually got. So, for example, some people wanted personalized advice, and then their advisor was just giving them cookie-cutter solutions,” concludes Morningstar.

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