It's a serious conundrum for financial advisors: Their success hinges on their ability to cultivate loyalty in their most affluent clients, but many are having a tough time building that loyalty.
This, at least, is the finding of our recent research. In a survey of 1,417 investors with investable assets of $500,000 to $6 million, only 13.8 percent could be defined as loyal to their primary financial advisor — the advisor with the highest percentage of the client's wealth. Another 39.3 percent were “satisfied,” and the remaining 46.9 percent were “moderately satisfied.”
These numbers are particularly jarring when one sees just how much of an impact a loyal and affluent client can make on an advisor's bottom line. For example, clients identified as loyal added, on average, $376,000 in additional assets to be managed in the preceding 12 months. In contrast, “satisfied” clients added $23,000, while “moderately satisfied” affluent clients added just $17,000.
Another indicator of the importance of loyalty is that loyal affluent clients made, on average, 11.8 qualified referrals in the previous year, compared to 2.1 qualified referrals from “satisfied” clients and 0.1 from the “moderately satisfied” clients.
How to Get That Feeling
Okay, so loyalty is indeed vital. But how does one cultivate it? Based on the responses of our 1,417 affluent investors, we built the following “6C” Framework
The six factors in the framework are:
Character — which comprises the personal qualities affluent clients look for in their financial advisors.
Chemistry — the extent to which a financial advisor and affluent clients “connect.”
Caring — having affluent clients feel that their advisors think of them as people and not just investable assets.
Competence — being technically proficient as well as erudite.
Cost-effectiveness — services and products are seen as having value beyond their cost.
Consulting — the ability of a financial advisor to develop an in-depth understanding of the affluent client and respond accordingly.
What's important to recognize is that these factors are, in fact, skill sets. A financial advisor can learn to be consultative or cost-effective or caring. Chemistry is the factor that proves most difficult to manufacture, but, nevertheless, there are behaviors a financial advisor can adopt to enhance chemistry. In sum, financial advisors can learn the skills that promote client loyalty.
We found that character, chemistry, caring and competence provide the foundation for loyalty. If an affluent client perceives his or her financial advisor as caring, then that financial advisor is likely to be perceived as having a good character. The chemistry between the two would thus be solid and the financial advisor would likely be seen as competent. Any one of these factors tended to enhance the other three.
If a financial advisor's products and services are seen as too expensive, that will have an impact on the four core factors. If a service is considered pricey, then the financial advisor is likely to be seen as less caring, and so forth.
One Stands Out
The single most important factor, however, proved to be the extent to which the financial advisors were consultative; dedicated to relationship building rather than product pushing.
Further, we found that if a financial advisor was perceived as consultative — directly and positively — influenced the other five factors in the framework. For example, by being highly consultative, a financial advisor's products and services were seen as being of greater value, thereby negating the cost issue. Moreover, by being highly consultative, financial advisors were considered to have greater integrity, to be more attuned to their affluent clients and to be more adept.
The trouble with being highly consultative is that it's easy to say and hard to define — let alone implement. Based on our research among affluent investors, being highly consultative meant exhibiting the following three behavioral patterns:
Cooperative orientation
Too many financial advisors are trying to do too much for their affluent clients. While a small segment of the affluent client universe want someone to take over, the majority prefer a give-and-take relationship. Consequently, financial advisors need to take specific actions that convey and enhance a cooperative working relationship.
Contact parameters
Many financial advisors see their affluent clients once a year or once a quarter, which makes many affluent investors feel neglected. There are very clear metrics that can be employed to determine the frequency and nature of financial advisor/affluent client contacts, and the use of such tools can go a long way toward ensuring a more consultative relationship.
Customized communications
The great majority of financial advisors have their “approach” and their set of “presentations” and “explanations” that they doggedly adhere to, regardless of whether they're relevant to a given affluent client. What they should be doing is modifying their message so that it resonates with a particular affluent client and his or her specific financial needs.
Building loyalty is a challenge — one in which most advisors are falling short. But by adopting these behaviors, by being more consultative as defined by the affluent clients at the receiving end, financial advisors can start to cultivate the affluent client loyalty that ultimately leads to greater profitability and success.