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As a financial advisor, acquiring new clients is a key business priority.
But it's crucial to recognize that client retention – keeping your book of clients - is equally vital.
High client turnover can harm your bottom line, deter potential clients, and may create stress.
But it’s important to remember that clients will come and go. It’s a fact of life in this industry. But your approach toward client satisfaction can significantly impact the natural turnover rate.
What I mean is, minimizing attrition should be a primary goal, and to achieve this, you need to understand why clients leave advisory firms and what strategies typically improve retention rates.
Once you understand that you can incorporate key financial advisor-client retention strategies that may help the development of a loyal, long-term client base.
So, let’s take a closer look at some of the big reasons clients leave and the tips on keeping them happy instead.
Why Do Clients Switch Financial Advisors?
Clients leaving have remained a thorn in the side of financial advisors – especially in the first few years.
For instance – did you know that according to a study1 from Etrade Advisor Sales in 2019 – the average percentage of clients that leave during a given year is 20% within a year. And 25% within one-two years.
Or - put another way - roughly one-fourth of new clients may leave within the first two years.
The good news is that as time goes on, retention rates also rise (meaning the average client generally sticks around longer).
Thus, the first two years are pivotal for a financial advisor.
Further evidence2 has shown that 80-90% of financial advisors seem to fail and close their firm within the first three years of business – implying that roughly 10% of financial advisors even succeed over time.
So why do clients leave?
Common reasons often are:
- Insufficient attention from their financial advisor
- Poor communication or delayed responses
- Mismatched advice with their financial goals
- Perceived underperformance of their portfolio
- High fees that reduce their investment returns
And while there are many more possible reasons – the good news here is that these kinds of reasons can be mitigated by a better understanding of your client.
So here are some key tips on how to potentially keep clients happy and prevent their departure. . .
Key Strategies to Boost Client Retention
1. Have Clear, Personal, and Prompt Communication (This is Key)
It's essential for clients to reach out to you with their questions or concerns, but that should not be the only form of communication. While being responsive is crucial, proactive outreach is equally important.
For instance – according to a 2019 Y-Charts Report3 – three-out-of-five clients (80%) believe that more frequent, more personalized contact with their advisors would give them more confidence in their financial plans.
Figure 1: Y-Charts
Further, 75% of clients want their advisor to send them personalized updates.
· In fact, in the same report, respondents ranked a “deep understanding of their goals” (60%) and “client communication” (59%) far above actual portfolio performance (47%).
Thus, the key takeaway here is:
- Proactively reach out to clients with updates and insights.
- Use a personalized approach that addresses each client’s unique financial goals. speak directly to your clients as if you're talking one-on-one, not addressing a crowd on your email list.
- Establish regular check-ins, even when there’s no immediate issue, to build trust and rapport.
2. Address Clients’ Broader Financial Needs (This is a Big One)
While portfolio performance and allocation matters, many clients want a financial advisor that offers more value.
This is why holistic (interconnected) financial planning is important – it hits more ways to improve client goals.
And there’s a big demand here that isn’t being met.
For instance, the Spectrem Group published a report4 in 2021 that broke down the services investors received, valued, and desired (aka what they wanted vs. what they could get).
Some highlights were:
- Trust Services: 91% desire it, but only 12% receive it.
- Estate Settlement Advice: 92% want this support, but only 11% receive it.
- Charitable and Philanthropic Planning: Desired by 87%, but received by only 6%.
- Educational Financial Advice: 82% want it, with only 6% receiving it.
Figure 2: eMoney (sourcing Spectrem Group)
Many clients today are seeking a comprehensive range of financial services and support, from investment management to estate planning and tax strategies.
Holistic financial advisors can play a vital role in meeting these needs and filling essential service gaps.
Put simply, if you can’t offer these key services, clients may start looking elsewhere for a financial advisor who can
That said, returns still matter. They’re essential for keeping clients content and helping their wealth grow.
However, demonstrating the overall value you bring throughout the client relationship can help them stay committed through the inevitable ups and downs on their journey to reaching their financial goals - wherever those may lie.
*Note: At Dunham, we offer financial advisors access to trust services and other holistic planning solutions. Contact us to learn more about how we can support your practice.
3. Manage Expectations Around Portfolio Performance
While investment performance is important, it's crucial to manage client expectations.
Most clients may understand that macro forces often influence returns. But a sudden black swan event – aka a random, unforeseen, large event (like COVID) – can be tricky to deal with.
The problem arises when clients are blindsided by their portfolio's performance – especially in times of volatility.
Thus, it's essential to establish a clear strategy and keep your clients informed about market volatility trends. If things start to go awry, reassure your clients, and remind them of their goals and your preparation for market downturns.
Some Strategies for Managing Client Expectations:
- Establish a clear, long-term strategy that anticipates market volatility.
- Regularly communicate market trends and how they align with the client’s goals.
- Provide reassurance during downturns and remind clients of their objectives and your approach to managing risk.
Conclusion: The Importance of Client Retention for Financial Advisors
Client retention is essential for the long-term success of financial advisors. And you keep them by enhancing value, communicating well, and providing clarity during uncertain times (the best you can).
Thus, by understanding why clients leave and implementing strategies to enhance retention, you can build stronger, more enduring relationships with your clients.
Which hopefully can become a win-win - the clients benefit from your help, and so does your bottom line.
What more can you ask for?
Source:
1. https://www.fa-mag.com/userfiles/ads_2019/ETRADE_May_2019/AI_Report_Client_Retention_ver2.pdf
2. https://deltawealthadvisors.com/blog/what-is-the-success-rate-of-a-financial-advisor
3. https://go.ycharts.com/hubfs/YCharts_Client_Communications_Survey.pdf
4. https://emoneyadvisor.com/blog/optimizing-service-expansion-for-your-financial-practice/
Disclosure:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax, or investment advice or an investment recommendation, or as a substitute for legal counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy, or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
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