When Jim Karabas joined Vestor Capital as managing director four years ago, he came with a few goals. One was to boost client satisfaction with the Chicago-based firm—and increase retention. To that end, he started conducting regular surveys looking for client feedback, first via snail mail, then through email. More recently, he began holding exit interviews on the phone with clients who were on the verge of leaving the firm, which manages about $600 million in assets. He had previously left it up to the individuals’ soon-to-be-former advisor to make that call.
The feedback surveys and other new services have led to a dramatic drop in client attrition, says Karabas, who came to Vestor after 18 years in private banking at Merrill lynch. Client attrition is down to less than 3 percent today from as high as 12 percent in 2006. “We’re able to learn from our mistakes and continually find out what we can be doing better,” says Karabas.
Obviously, no one wants clients to leave. But too often, the advisor is the last to know about a client's dissatisfaction. Many advisors only find out after the fact—and then it’s too late. That’s why you need to make sure you have your finger on your clients’ pulse and an up-to-the-minute understanding of what they like—and dislike—about what you do. It’s particularly important in the current climate of disillusionment, when clients are switching advisors right and left.
Turns out, as Karabas discovered, there are a lot of ways to elicit feedback systematically from clients. You can use anything from online surveys to in-person meetings. It’s best to choose one method that works best for your practice and stick to it. The hardest part may be actually hearing what your clients really think. But the alternative is worse. “If you choose to bury your head in the sand, clients are going to leave,” says Greg Sarian, first vice president of investments and an advisor with Merrill Lynch in Wayne, Pa.
Contrary to popular wisdom, the biggest potential threat isn’t disgruntled clients. After all, you often have at least a feel for who those people are. For example, they don’t return phone calls or emails. And when they do get back, they ask for your assistant. The greater worry is clients who are more neutral. “Those who are neither happy nor unhappy pose the worst risk,” says Philip Palaveev, president of Fusion Advisor Network in Elmsford, NY. Those people can be swayed easily by another advisor with a good pitch.
For Karabas, the key is to pinpoint which clients are in what he calls an “engaged state” and which are either “satisfied” or “complacent”. Probably the most efficient way to accomplish that in one fell swoop is through regular surveys. To that end, since 2006, Karabas has sent a survey to about 300 of his 500 clients every 18 months, asking such questions as, “ How often do you think is appropriate for your advisor to contact you over the course of 12 months?” and “Has performance met or exceeded your expectations?” With that information, he then determines which clients are at risk and has their advisor call to discuss ways to improve.
Similarly, in late 2008, in the middle of the market crisis, Peter Tedstrom surveyed his 98 clients, focusing on client loyalty and reactions to advisory services. Tedstrom, a partner with Brown & Tedstrom, an independent firm in Denver with $360 million in assets, garnered some surprising insights. For one thing, clients wanted more information about fees. So, he started talking more about the subject at client meetings. He also discovered clients wanted easier to understand graphics and charts. To that end, he developed a new look and approach, so that each graphic element in a document can stand on its own.
Another tack is to form an advisory board of 5 to 20 top clients and tap their insights into ways to improve the practice and raise their level of satisfaction. That can happen during regular meetings with the board or in one-on-one sessions. In either case, it’s a useful method for not only finding out about problems, but getting feedback about any new moves you’re mulling over. That way, you can tweak them while they’re still in the planning stages—not afterwards, when it may be too late.
Take Kelly Rindock, an advisor with Steel Valley Investment Group of Raymond James & Associates in Center Valley, Pa. Rindock introduced a client advisory board about a year and a half ago. At one recent meeting of the 12-member group, which meets quarterly, she asked her members to pinpoint the appropriate skills for a new position she wanted to fill. Much to her surprise, she learned that they wanted her to promote her receptionist.
Similarly, Eric Brotman, who heads Brotman Financial, a Timonium, Md., firm with $75 million in assets, has gained a wide range of invaluable insights from his 20-person board since starting it about three years ago. That has included everything from a realization that his clients prefer brief educational workshops to client-appreciation dinners, to the fact that they did not even look at the fancy quarterly investment reports he was preparing.
The downside of relying on an advisory board for feedback is that the members might lack objectivity. “They tend to be your cheerleaders,” says Palaveev. For that reason, the most effective—and personal—way to find out what individual clients are thinking may simply be to bring it up during your regular meetings. “If I were an advisor, I would make a point of asking at every meeting what are we doing well, what should we be doing differently and what should we do next year,” says Palaveev.
But don’t make it sound scripted. “It’s all about authenticity,” says Palaveev. If you feel more comfortable, look for a place in the conversation where the topic fits naturally. Or, like Merrill Lynch’s Sarian, you can take the opposite tack. He usually emails an agenda to clients three to five days before an appointment. At the top, he includes a request that clients let him know if there are other issues they’d like discus. Then, one of the items on the agenda specifically focuses on “our relationship and the value we create,” says Sarian, who has about $650 million in assets.
That approach proved to be helpful recently, when Sarian met with a client who was showing clear signs of disgruntlement—not retuning phone calls, for example. When they got to the appropriate point in the agenda, the client readily brought up a festering problem: While working with another advisor in the late 90’s, he’d bought a number of stocks at their peak. Then he’d insisted on holding onto them and hadn’t been able to get to break even. Sarian acknowledged the problem, but also reviewed all the services he’d successfully helped the client with—redoing his estate plan and helping to set up a college fund for his grandchildren, for example. The result: The client left the meeting in a much more friendly mood.
Be careful what you ask, however. “When someone tells you what you can do better and you’re not prepared to act, don’t ask,” says Palaveev. In fact, looking for criticism and then ignoring it is likely to create even more antagonism. In addition, it’s quite possible that, during the course of receiving feedback, some clients will ask you to take on tasks you simply aren’t prepared to accept—anything from paying bills to using an asset manager you don’t like or an investment you’re not comfortable with. In those cases, you might have to refer your client to a different specialist or simply explain that whatever the task is, it’s not something you can do.
It comes down to a matter of expectations—making clear to clients what services to expect initially and reinforcing that message afterwards. “Disappointing relationships usually are from poor communication and poor management of expectations,” says John Nersesian, managing director of Nuveen Investments in Chicago.
On the other hand, if, like Karabas, you find a majority of clients are making the same request, that might be a call to action. He discovered results from last November’s survey revealed that more than 50 percent of clients wanted the firm to offer more insurance services. As a result, Karabas is creating a subsidiary to provide those services.
Fact is, the feedback you get might help you to realize you don’t want to keep certain clients, after all. About four years ago, Randy Gerber, an advisor with Gerber Financial Services, a Worthington, Ohio, firm that manages about $200 million in assets and is affiliated with Raymond James Financial Services, started using a survey available through a site called netpromoter.com. Drawing on work done by the management consulting firm Bain, the survey relies on a single question (“How likely are you to refer a trusted friend or family member to this firm?”) that, according to the firm, is highly likely to indicate whether the relationship will continue. Every six months, he surveys his clients with that question.
But, three years ago, when reviewing the results for different client segments, he came to an unexpected conclusion: While clients in the top two categories gave him good scores, he received a very low rating from the third group. “The clients who were the least profitable were also the most unhappy,” he says. With that insight, he realized that providing the kind of service those clients wanted just wasn’t worth it. First, he approached those people to see if they were willing to pay a higher fee in return for a higher level of service. When no one indicated they were interested, he then offered to move them a different advisor or to a call-in service offered by Raymond James. Now, according to Gerber, he has the same number of clients as before; they’re just a better fit. “We’ve been able to focus on the type of client we really want,” he says. “And employees can spend more time providing service to those paying the bills.”