Clients on the run: Signs and solutions

You worked with them to build their net worth. But now you have to work just as hard to make them stay. What do you do to keep your wealthy clients when they become a flight risk?

Advisors and firms working in the high-net-worth space are no doubt highly skilled and clued-up. They know how to pre-empt potential problems, and how to ensure their clients don’t take their business elsewhere. So are there really no unpopped kernels in this bag of popcorn? Not really, say the experts, adding—to borrow from the basic principle of health and medicine—that prevention is better than cure.

Prevention is indeed the cure. The fundamentals of a client-advisor relationship aren’t dramatically different when the clientele comprises mainly high-net-worth individuals. When a high-net-worth client becomes a flight risk, there is a strong chance that things have already gone too far. The damage is done.

Advisors, therefore, tend to focus more on measures that pre-empt and prevent such situations, says David Sung, president of Vancouver-based Nicola Wealth Management. Three Ps—personal trust, professional trust, and procedural trust—provide the canopy that shelters the client-advisor relationship from a wide range of issues.

If advisors miss just one P the relationship is down for the count. “Regardless of whether it’s a high-net-worth client or a non-high-net-worth client, at the core of every client-advisor relationship is trust,” says Sung. “And an advisor has to work hard at building that relationship with their high-net-worth clients and cementing that trust.”

The trust factor applies in every advisor-client relationship, but with high-net-worth clients those three elements of trust are heightened. “Flight risks are more often than not the result of a lack of proactive measures and missed opportunities by advisors to build trust,” Sung explains. “Proving to your clients that you are dependable and can be their trusted advisor is the foundation of any strong client-advisor relationship.”

Integrity and care are integral to maintaining client satisfaction. Sung identifies transparency, proactive communication and results as keys to building trust and keeping clients. “If we look at results as a major contributor to client trust and satisfaction, there are two types of results clients can look at: investment results and planning results,” says Sung.

Some may argue it’s only the investment results that matter—more so during uncertain times like the financial crisis of 2008, a true litmus test for a client-advisor relationship. The absence of investment results can make the most meticulous planning and execution look like knitting without needles. Sung admits results do matter, but asserts communication—constant, concise, clear communication—is equally vital, if not more so.

“We’re always looking to communicate with clients not just regarding their investment results, but their overall financial planning results,” says Sung. “And after identifying and mapping out a client’s goals and objectives, it’s important for us as advisors to review that plan and those goals regularly to ensure our clients are on track to meeting their goals.”

Scott Starratt, director, wealth management at Richardson GMP Limited, stresses that the whole issue of preventing high-net-worth clients from becoming a flight risk comes down to trust. And that trust is built around very clear communication.

“The biggest way you develop relationships with people is through communication, whether by increasing the amount of time you spend with them, or using alternative delivery channels like e-mail blasts or e-newsletters or conference calls with selected managers,” says Starratt. “If the advisor communicates to the client that they appreciate the client’s business and, more importantly, listen and understand that person, then I think the client’s going to feel that the advisor’s doing the best he can under difficult market conditions.”

The amount of time the client spends feeling comfortable is inversely proportional to amount of information coming from the advisor. Starratt has heard all the arguments about high-net-worth clients being too busy for chats. It’s all about how an advisor positions himself, he says. “You need to position yourself as a needed individual in that person’s life, and sometimes this means acting as the quarterback and ensuring their other needs are met,” he said. “[It is] no different [than] going to the dentist or going to the doctor; if you position [your work together] as one of those needed activities then I think the client is more comfortable having to do it.”

Few would deny that sometimes, despite an advisor’s best efforts, the carpet does not go wall to wall. Are there any classic signs that a high-net-worth client may be looking elsewhere? Absolutely, says Starratt, adding that a lot of the time the writing’s on the wall. “The first sign is the change of behaviour; for example, if you had a client that upon consultation would take all of your recommendations, and now all of a sudden they weren’t taking all of them,” he says. That’s a sign there may be a loss of trust.

Sung also suggests the behaviour shift is a red flag. “The real classic sign is when clients begin to ask questions that they’ve not normally asked in the past as it relates to how you’re operating and maintaining their family’s financial affairs,” he says. “When a client is asking questions or looking for feedback as it relates to their personal situation, they’re engaged with their advisor, [but] when they’re asking questions about how you’re running your business then the advisor has blown that level of trust.”

On the other hand, lack of communication on the client’s part is just as strong a signal that something is troubling the client. “If they’re questioning things more often, that should be a sign for an advisor; [but] if they withdraw, that should be another sign to the advisor that there has been a change that’s occurred for that client.”

Last but not least, never underestimate the value of transparency, or the client’s intelligence. Don’t sugar coat it for them, warns Sung. High-net-worth clients can take bad news as long as they are told exactly what’s happening and what strategy advisors have in place to deal with it.

“And that really touches upon the vital importance of clear, transparent communication; really what we’re talking about is integrity, showing that there’s true caring and intention to help your client, and establishing common values between the advisor and the high-net-worth client.”

Sung notes that high-net-worth clients are generally more market savvy and better understand the issues with respect to diversification. But when it comes to the crunch, he cautions, high-net-worth clients are not beyond letting their emotions get the better of them.

“I would say that the high-net-worth client is just as susceptible to letting their emotions dictate poor investment behaviour and making a poor investment decision; they’re just as susceptible as the non-high-net-worth client.”