The Bird in the Hand

A persistent myth of the brokerage industry is that prospecting is the best way to expand a practice, however, advisors are far more likely to profit from expanding relationships with existing customers.

A persistent myth of the brokerage industry is that prospecting is the best way to expand a practice. Acquiring clients is, of course, an important part of establishing an advisory business. But once that groundwork is laid, advisors are far more likely to profit from expanding relationships with existing customers.

“It costs 10 times more to get a new customer than to keep a current one,” says Patti Hathaway, business advisor and author whose consulting business, The Change Agent, deals with improving customer loyalty and interpersonal communications skills. “Why do they spend all that money? Eighty percent to 90 percent of most companies' budgets are spent trying to get new customers. They need to be asking their best customers what they're doing right.”

This may not surprise the average broker. Indeed, studies suggest that financial professionals are well aware of the situation, but surprisingly few are turning this knowledge into action. As a result, many clients' needs and desires are going unmet, increasing the likelihood that advisors could lose existing business to those who would pay closer attention.

A recent survey by the consulting firm BearingPoint, for instance, shows a huge disconnect between the wishes of customers and the way senior managers are structuring their businesses. While 92 percent of financial institution executives surveyed acknowledged that there is a significant opportunity to enhance customer loyalty through improving the customer experience, 42 percent say that inflexible product silos still drive their interaction with their customers.

“Historically, we worried about the products we had and finding customers for them, and then lined up all our people and processes up against that. We never really stepped back and said, ‘If I were a customer, what product would I really want?’” says Ramesh Nair, managing director at BearingPoint, which is based in McLean, Va. “That's the whole idea behind the study — don't take an inside-out perspective.”

The Software Fix

Anyone who has been in the industry for any length of time has heard about CRM — the customer relationship management software that helps businesses put their client data to productive use. When deployed effectively in financial services, such systems deliver a comprehensive view of the products each client uses and point advisors towards products and services they could pitch to clients. Unfortunately, deploying CRM is a complex, expensive task, and many firms' systems deliver less than ideal results. Compounding the problem is the fact that many firms expect the system itself to solve all CRM-related problems; in fact, effective CRM hinges on whether employees are trained to make use of the information delivered to them.

“Almost every firm that has embarked on a major CRM initiative has failed, failed to meet expectations or they are restarting,” Nair says.

Karen Maguire, CEO and founder of Satuit Technologies in Norwell, Mass., gives an example of ineffective customer relationship management: “We have our cash management accounts with a broker. At any point in time, we can move those. There's nothing that's keeping my account there. And my broker's not made any contact whatsoever,” he says. “There's so much emphasis on getting the new customer that they forget the existing one.” In short, Maguire's broker is making the classic mistake of assuming that the customer will remain loyal long after the sale.

“I believe there's a gap in the goal orientation of the client versus the product orientation of the advisor,” says Jack May, senior vice president and head of the advisor solution group for SEI Investments in Oaks, Pa. “Clients view advisory activity as a means to an end, and that end is goal achievement.”

May says that many times, advisors treat their clients as though they were static investment profiles, rather than human beings whose needs and desires shift constantly. “We believe there's a softer side to knowing your client, and it's what is that client trying to achieve personally?” he says.

Doing this right starts with connecting with the client on a regular basis. Hathaway uses a top-100 list that includes current and potential clients. Her goal is to put something in front of every one of them every six weeks. The more personalized the contact, the better.

“Look for great articles that can save your clients some money, and send it to them along with a note: ‘Here's an interesting article that might save you some money on your taxes,’” she says. “I'm sure they'll remember that broker when tax season comes around.”

The Art of the Soft Sell

Hathaway also says that brokers need to change their sales approach. “They really need to listen to their customers,” she says. “Many will go in trying to sell their stuff. That's not what it's about. If you listen just a little, the customer will tell you everything you need to know to sell them on the products you have.”

That connection is not the icing on the cake — it is the cake itself. “The single most important thing I teach people who have to sell is they must subconsciously connect to people so they build rapport on the subconscious level,” Hathaway says. “The financial services industry sells rational stuff. You sell products and services with fees that look just like the ones sold by the financial services person two offices down. What you have to do is satisfy emotional desires.”

Despite its drawbacks, CRM software is an integral part of any top-notch customer management process. Not all companies believe this, however. “One of the biggest stumbling blocks we have at the end of it is adoption,” says Nair. “There's a tremendous resistance in taking on new CRM techniques because the track record's been so terrible. The financial planner doesn't believe anything anymore.”

Still, there are ways to implement CRM programs that take some of the bitterness out of the pill. Nair suggests a lead-by-example scenario. Finding brokers who have had successes with certain strategies means much more to other brokers than simply receiving emails from a marketing department pointing the brokers toward potential follow-ups.

Maguire says CRM's biggest benefit is the way it streamlines her day. “I want to be able to come in in the morning and know who I'm supposed to contact and why,” she says. “I don't want to go from Outlook to the Rolodex in order to do that. I want to look at that person's name, click on it, see his phone number, make that call, write that note and hit my follow-up key for the next step.”

No matter how sophisticated the software, brokers always remember that no automation trumps human interaction. “Recognize why you've gotten the customers in the first place,” says Hathaway. “That's the biggest reason you're going to keep them — because you made a personal connection. It's all about connections. It's about being remembered and about memorable service.”

She adds, “Customer satisfaction is not enough — we're way too competitive a market for that. We need to create customer loyalty, and loyalty only comes from an emotional connection.”

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