The Practice Doctor is IN

Al Depman, CLU, ChFC, CMFC, BH

Building Strong Advisor/Client Relationships

Thanksgiving is generally a time that makes you take a step back and think about what you’re grateful for. Towards the top of that list should be your clients. After all, without clients you wouldn’t have a practice. Recently I came across a national study* that examined the advisor/client relationship from a variety of angles. It reinforced most of the best practices I’ve accumulated over the years and offered some insights that are good to keep in mind while building a practice. Let’s take a look at some of them.

Referrals continue to rule. A primary marketing focus for most of the advisors I work with is pre-retirees (ages 55-65). In this group, the study found that a whopping 68% connected with their primary financial advisor via referrals from friends, family, co-workers, or other professional advisors. Another 24% got together with their advisor through a company they were currently doing business with, such as a 401(k) or other group provider. Worksite or employer-sponsored seminars accounted for many of these new advisor relationships stemming from already-existing group presences.  

However, in all age groups, referrals remain the dominant prospecting source regardless of how the statistics get sliced and diced. 

Trust is a primary factor in selecting an advisor. 64% of the pre-retirees cited trust as a significant factor in selecting and engaging a financial advisor. This is interesting because trust is something developed over time. How, then, can this be a key reason to select an advisor? Coupled with the referral process, it would seem that trust is transmitted from the referral source. 

Let’s say Sandy is a client of Lee. Sandy has learned to trust Lee over the course of their 5-year financial advisory relationship. Lee asks Sandy for an introduction to Tom.  Sandy agrees and contacts Tom, saying something like, “My advisor, Lee, is a good advisor and asked me if I’d mind introducing him to you. I said I would. He’s got my complete trust on financial issues, so it’s worth talking to him. Would that be OK?” This is transferring trust by proxy, and is the single biggest component of any referral process. 

It’s also why many referral processes fail––the advisor has simply not earned enough trust from the client. This client is being asked to provide an introduction and will resist doing so if there is any hint of untrustworthiness in the existing relationship. Building a “refer-able” level of trust with your clients is an invaluable byproduct of a strong Client Management system.

Two other factors cited by the report in selecting an advisor are the advisor’s investment performance history and communication skills.

You may think performance history is a no-brainer. Of course, superior returns will attract new clients!  But in this era of billion-dollar Ponzi schemes, returns aren’t always what they seem. Well documented above-average returns would be attractive, as would the strategies leading to those returns. Transparency in your investment philosophy is more important than ever.

Communication skills speak to the quality and frequency of client contact. Advisors who go into seclusion when bad news grabs the headlines are at risk of losing clients. Those of you who grabbed the bull (or bear?) by the horns in the recent economic crisis and proactively reached out to hand-hold nervous clients are in a great position to demonstrate strong communication skills and thus becoming more refer-able.

Top reasons why clients switch advisors. The report also addressed reasons given for leaving one advisor for another. The first four are not surprising based on the characteristics discussed above for selecting an advisor. The fifth one, though, is interesting:

1. The most common reason for switching advisors is that the advisor leaves the business––you only have to look at the vast orphan pools to see the evidence of this carnage.
2. The next reason is that the client has relocated and loses touch with the old advisor and/or prefers to work with someone who is local.
3. Third, as might be expected, is dissatisfaction with portfolio performance.
4. The fourth reason cited for changing advisors is a lack of communication. 
5. The final reason is that the client has gone through a life change, usually finding a new job (or losing one) or changing marital status.

The last point seems to indicate that clients might find that an advisor isn’t capable of understanding a new situation in that client’s life. Common points of departure include:

• Divorce: the newly separated exes want to start over and don’t find any empathy with the advisor.
• Unemployment: the advisor finds it hard to reach out and offer a hand when the client is liquidating assets to pay the bills.
• Special needs family members: the advisor might be uncomfortable dealing with the family dynamics and pressures brought on suddenly or over time.

As with most reports of this type, this one presents statistical confirmation of things we already knew. Still, it’s valuable to see them in black and white. They serve as a reminder not to take your eye off the proverbial ball––that clients need proactive care and contact so that you engender a strong trust relationship. This trusting relationship will be the source of your future growth. 

The doctor is OUT.

* LIMRA Advisor for Life Report, September, 2009

Al Depman, CLU, ChFC, CMFC, BH, a.k.a. “The Practice Doctor”, is MitchAnthony.com’s Business Practice Consultant. He is the creator of “The Practice Management Assessment” tool and materials and has authored numerous articles in professional publications on practice management, and author of the forthcoming book, How to Build Your Financial Advisory Business, to be published by McGraw Hill in 2009. Al combined his Liberal Arts studies with 10 years of management experience with McDonald’s Corporation to enter the financial services world 25 years ago. Since then, Al has evolved from an MDRT-level sales rep into a full-time consultant specializing in helping others engineer their business practices to the next level. Contact him at al@mitchanthony.com.

© 2009 Al Depman