Mind Your Business

Financial advisors need to take better care of their clients, because if they do, their clients will take care of them. And if they don’t, well, they stand the chance of losing a good chunk of their business.

Financial advisors need to take better care of their clients, because if they do, their clients will take care of them. And if they don’t, well, they stand the chance of losing a good chunk of their business.

That, at least, is the message from two new investor surveys. In a poll of 2,300 investors, Jack Waymire, founder of the Paladin Registry, an online registry that matches investors with suitable advisors, and author of Who’s Watching Your Money? (John Wiley & Sons, 2003), concluded that millions of investors fire their advisors every year because they did not receive the results and services they expected. In fact, Waymire says, many investors “have fired two or more advisors in the past seven years.” One factor is that they tend to use the same selection process every time. Not surprisingly, investors fire more advisors during market slumps than during peaks.

Meanwhile, investors who hang around can be the source of more business. “Highly committed” clients are 12 times more likely to bring in new assets than “lower committed” clients, according to J.D. Power & Associates’ 2006 Full-Service Satisfaction Survey. The survey also notes that highly committed clients generally have had a better experience with the advisor and his or her firm.

Advisors deserve some of the blame for client flight, according to Waymire. In some cases they don’t disclose crucial information like their credentials, ethics and business practices, which would help investors pick the advisor that is best for them. (In all fairness to advisors, clients might not ask, either.)

One thing advisors can do to get and keep clients is to specialize as either financial advisors or planners and explain the difference to any prospective clients. Waymire says that most clients need the service of an advisor and a planner and that few professionals can truly offer both, resulting in unsuitable investment advice and bad financial plans. Of course, advisors who lack the knowledge to offer one of the services can seek outside expertise.

Russ Alan Prince, market researcher and consultant with Prince & Associates, offers some basic advice to reps once clients are on board. “Staying on top of relationships is key,” he says. “That doesn’t mean just quarterly calls. How much contact is based on what the client needs. Those are the core elements to creating high rapport and loyalty.”

The value of a satisfied client can pay off with more than just good relations. Highly committed clients are five times more likely to recommend their firm to a friend or family member, according to the J. D. Power survey. Also, they generate 12 times more new investment dollars per year compared to clients with lower commitment.

James Lohmann, senior director of investment-services research at J.D. Power & Associates, says, “Highly satisfied and committed clients must be viewed as an investment firm’s most valued asset.”

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