Poor communication, patchy service, persuasive competition and piecemeal advice can send your clients packing.
Customers on their way out may not say why they are going. But research and real-life experience show that how you relate to clients can make or break the relationship. In particular, the job you do educating them and the service you provide are key factors in investor satisfaction, according to a J.D. Power and Associates survey.
"Investors want information and education," says Nancy Salk, director of research for J.D. Power and Associates in Agoura Hills, Calif. "With greater access to a plethora of financial material from the Internet and media, investors are in information overload. Investors are looking for a broker who will be an information disseminator."
In a survey conducted among investors with portfolios of $100,000 or more, information and education score highest in importance to satisfaction, followed by customer service. Those variables together represent nearly three-quarters of the responses. Way down the scale are broker performance and fees and commissions (see chart).
Provide education and service, and you have the advantage. And the way to do both relates in large part to communication.
"I cannot stress the importance of communication strongly enough," says Louis Harvey, president of Dalbar, a financial services research firm in Boston. "The No. 1 reason an investor will leave a broker is that the client's expectations were not met and/or communicated clearly."
While good communication alone cannot sustain a relationship, poor communication will nearly always break it.
Harvey cites an example of a client transferring funds from his current broker at a major wirehouse to a managed money account with another broker at a different wirehouse. "The client did this because he was not aware that his existing broker offered these same services. By the time the broker found out, it was too late."
The first broker didn't even know that the assets he had from the client were only a small portion of the client's net worth, Harvey adds.
Establishing expectations stands out as a key to client retention as well. "Clients will leave when expectations are not clearly communicated or understood," says Matt Bolka, founder of Quality of Business Training Programs, a consulting firm in Blowing Rock, N.C. "What does it mean when a client says that his or her financial adviser doesn't keep in touch? What are the client's expectations? Does the client expect the adviser to call once a year, twice a year, every day?"
Since different clients require different frequencies and methods of contact, a discussion and definition of these expectations is needed in the initial consultation, Bolka says. "Failure to do this can promote genuine misunderstanding and lead the client right into the arms of the competition."
Snubbed Customers Clients who feel neglected are apt to walk, according to experts. "Clients have told me they felt ignored when they'd call their previous adviser several times without getting a return phone call," says Rick Fingerman, a financial planner with Financial Planning Solutions in Medford, Mass. "Many of these clients didn't have huge amounts of assets and their perception was that maybe the rep thought ignoring them was a good way to get rid of them."
Ignore is not in Fingerman's vocabulary. He prides himself on establishing tight ties from day one. "Stay in front of your clients," he says. "Send birthday and holiday cards. Use monthly newsletters, regular phone calls, seminars and portfolio reviews to keep the lines of communication open."
Contact is particularly important when market conditions get dicey. While research shows investment performance is not a primary factor in client defection, a volatile market can bring unresolved issues to a head, says Craig Pickering, a registered rep with McDonald Investments in Hudson, Ohio. "As the past year has shown, unless you can justify that you're a value-added component to the equation, clients will perceive you as a commodity and may ultimately switch to brokers they believe will do more for them."
That means keeping in touch during tumultuous times, properly repositioning assets and holding regular portfolio reviews, Pickering says. "If you don't, clients are going to justifiably ask, `What are you doing for me and why am I paying you for this?'"
Indeed, some investors may feel compelled to move for a better deal. "Investors are being enticed by lower fees and other incentives to transfer their money from different accounts and firms to one source," Harvey says.
However, Salk points out that low fees and commissions might be a point of attraction, but they are not a point of retention. "It might drive investors in but it won't keep them."
Experts agree the primary way brokers can prevent client defections is by nurturing relationships. "That translates into how well they get along, whether they are on the same page and whether there is a clear and mutual understanding of the client's goals and objectives," says Geordie Lunt, spokesperson for Prudential Securities in New York. "Clearly if that relationship is not strong, there's going to be the potential for client dissatisfaction."
In the end, it's not the economy, stupid. It's the relationship.
"Financial advising is 50% finance and 50% advising," Bolka says. "It takes relationship management and good communication skills to make it work. If the competition is calling your clients more than you are, what do you think is going to happen?"
Clients may want you to tie all their financial needs together - or they'll cut you loose.
Mergers among banks, insurers and securities firms have increased the products and services brokers can offer clients. That's the good news.
The bad news is that some investors, faced with a multitude of choices from which to pick and choose, are tempted to leave their existing brokers for what they see as greener pastures.
"The other people who have always been interested in your clients are now going after them with a lot more to offer than ever before," says Leo Pusateri, of Pusateri Consulting and Training in Buffalo, N.Y. "The competition is wooing investors with compelling reasons to switch by being more proactive in presenting broad solutions to investor needs."
Pusateri says investors perceive merged firms as able to offer integrated financial services. "Then they look at their existing consultant and wonder, `Why haven't you talked to me about this stuff?'" he says.
Investors are increasingly seeking full-service financial consulting, says Anne Gardner, a rep with US Bancorp Piper Jaffray in Denver. "The more services you can provide to your clients, the more apt they will be to stay with you."
She uses a team approach in her practice, working with several portfolio managers depending on the needs of her clients. "The focus is delivering what clients need and what the competition is offering," she says. "Clients will leave if they believe they can get all their financial needs covered someplace else in a one-stop shop."
