I take it personally when I call or email someone and don’t get any response. I try to be a big boy about it, but, truth is, it irks me.
Apparently, I am not alone. The top reason that clients fire their financial advisors is failure to return phone calls in a timely manner. Not returning emails is also high on the list. So is failure to initiate proactive contact. What we have here is a failure to communicate.
These results come straight from a recent Spectrum Group Market Insights Report. They are consistent with other studies I’ve seen on why clients fire their advisors. The top reasons are always more related to poor communication than to portfolio performance.
Are clients too demanding? The Spectrum Group study reveals that 95 percent of them want their calls returned within 24 hours and 25 percent want a call-back within two hours. And 43 percent want to hear directly from their advisor, not an associate or another team member. Don’t they realize how busy you are working on their portfolios and financial plans?
Before we blame clients for having unreasonable standards, let’s look more deeply at what is really happening when a client takes a hike because of an advisor’s lack of responsiveness. These clients are not unhappy because they didn’t get quick answers to their questions. They simply don’t trust their advisor anymore and trust is essential to any advisory relationship.
Here’s how it works. A recent Qualtrics study found that the top reason clients choose their advisors is “trust.” A 2017 Vanguard study found that there are three components to trust: functional, ethical and emotional. The functional component relates to the credentials and skills as an advisor. The ethical component covers how behaviors and practices stack up with client expectations about proper conduct. The emotional component relates to the intangible factors that bring about positive feelings and sensibilities in the client.
Initially, trust is based primarily on the functional component for obvious reasons. The Spectrum Group study found that 65 percent of clients didn’t know their advisor before their relationship was established. How do you trust someone you don’t know? You rely on “proof sources,” which include credentials, past performance and referrals from friends.
Over time, however, “relational trust” develops. This is where the ethical and emotional components of trust start to play a role. The client observes the advisor’s behavior and makes judgments about the ethical quality of their conduct. They also develop feelings about how the advisor perceives them based on their “repeated and reciprocated interactions.” Is this advisor my advocate? Do they care about my goals? Is my financial well-being important to them?
If all goes well, relational trust builds over time. The Vanguard study found that 65 percent of clients had “high trust” in their advisor if they had less than a year of tenure with that advisor. But 89 percent of clients expressed “high trust” in advisors with 15 years or more of tenure. It takes time and consistency to demonstrate the competence, ethics and caring that establish trust.
If you think you can make up for ignoring your clients’ feelings (and phone calls) by being more proficient in planning and investing, you are wrong. The Vanguard study found that the emotional component of trust was more important than the other two components combined.
Its authors observed: “It may seem counterintuitive that the functional aspects of trust—the aspects directly relevant to the task advisors were hired to do—have the least effect on overall trust.” They then concluded: “It is not enough for financial advisors simply to do what they were hired to do. An advisory relationship needs to be continuously nurtured to build trust.”
The evidence is clear. Failure to return phone calls and emails erodes trust. It makes perfect sense. If you ask someone a question face-to-face and they don’t answer, you interpret their silence as a lack of respect and concern for you. The same thing happens when client calls and emails go unanswered. How can you trust someone who doesn’t respect you or have your best interests at heart? If a person doesn’t care enough to return your phone calls and emails, how much time and effort are they going to put into securing your financial future?
The good news is, you have control over most of the factors that build trust. So put processes in place to make sure you focus on these factors, because losing client trust is costly to your business. The Vanguard study found that high levels of client trust are associated with higher levels of client loyalty, increased advisor referrals, increased share of client wallet and better client retention. In other words, it pays to return phone calls and emails promptly.
Next time you’re tempted to put off, say, returning a client’s phone call because you’re too busy working on their portfolio, think again. The evidence suggests your client will be happier and your business will be healthier if you pick up the phone and make a deposit in the trust bank.
Scott MacKillop is CEO of First Ascent Asset Management, a Denver-based firm that provides investment management services to financial advisors and their clients. He is a 40-year veteran of the financial services industry. He can be reached at [email protected].