Building client loyalty pays off: survey

Most advisors know it is important to have a strong relationship with their clients. But a recent white paper published by Dow Jones Newswires says it’s even more critical than most advisors realize, especially in the high net worth sector.

According to the paper, loyal clients are much, much more inclined to give additional assets to their financial advisors to manage — up to 16-times more, in fact.

A study of 1,417 affluent American individuals with a net worth of between $1 million and $10 million, found loyal clients invested an additional $376,000 US with their primary financial advisor over the previous 12 months. That compares with clients who were either simply satisfied or moderately satisfied who invested an additional $23,000 US or $17,000 US with their advisors respectively.

The study, conducted for Dow Jones by Patricia Abram, John Bowen Jr. and Russ Prince of CEG Worldwide, spells out six factors that can help create loyalty. Advisors must demonstrate that they are honest and that they care about and understand the needs of their clients. Also, they must not only show they are competent in their field, but that they can offer their clients true value for the cost of services and products. And finally, the most important factor, according to the study, is that advisors consult with their clients on an ongoing basis.

But this approach need not only apply to affluent clients. David Phipps, a senior financial advisor with Assante Wealth Management in Ottawa, says some of these same tactics are effective for dealing with smaller clients as well. Currently he serves about 160 families with an average $250,000 in assets.

His goal is to build a successful relationship with each and every one of his clients, he says. One of the way’s he’s done this is by deliberately keeping his client base small.

Phipps grows his business by buying books from retiring advisors, but often sells a portion of business to another advisor within a year after taking on the new clients. “If there is not a fit after one year, I sell that part of my business to another advisor,” he says. “I don’t maintain relationships with clients where there is not a good working relationship.”

In other words, Phipps only keeps clients that he has client loyalty with. It’s not a bad approach. According to the Dow Jones paper “advisors with loyal clients can enjoy substantial year-on-year growth in their incomes — concentrating their time and attention on existing clients and spending far less time on prospecting.”

While the frequency of Phipps contact may work well for the type of clients he serves, affluent clients expect to hear from their advisors much more. According to the study, clients who felt loyal to their advisors reported that they were contacted an average of 24.1 times a year on non-investment matters. Clients who said they were satisfied with their advisor, meanwhile, said they had been contacted an average of 2.1 times a year while moderately satisfied clients were barely contacted at all.

Another section of the paper that studied 1,177 financial advisors found those who offer more financial products, who have the expertise, and who are willing to build a rapport with their clients earn much higher revenues, manage more assets and work with fewer clients.

The wealth management edge Investment Generalist Product Specialist Wealth Manager Average gross production US$490,000 US$510,000 US$980,000 Average assets under management US$26 million US$8 million US$71 million Average number of clients 330 210 80 Source: Russ Alan Prince and David Geracioti, Cultivating the Middle Class Millionaire

“It’s called building walls around your clients,” Phipps says. “If you don’t sell them life insurance someone else will and that person is probably going to be licensed nowadays to sell investments and you’ve got one more competitor that has a door open to the client.”

The overall conclusion of the paper is that while advisors tend to want to grow their business by finding new, affluent clients, the importance of providing quality advice and maintaining a bond with existing clients should not be overlooked.

“This route can be more effective at growing advisor income than prospecting for new clients and is certainly less-time consuming,” the report concludes.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(11/21/05)