How to rein clients in

What’s the most important thing a financial advisor does for clients? Provide sound investment advice and financial planning that clients can rely on? Maybe. That is, after all, the primary role of the financial advisor.

But many would say that simply isn’t enough. Today’s clients expect more, so attracting and retaining them is about going above and beyond the basics of managing their investments.

Nicolas Del Sorbo, senior vice president and investment advisor at HSBC Securities (Canada), puts it this way:

“My general feeling is that most clients have an expectation that you’re going to be a good investment advisor. In other words, that’s a given. How I think you differentiate yourself is by doing value-add things that a client isn’t likely to see from another advisor.”

The holistic approach

So how are today’s financial advisors adding value for their clients? Many are taking a more holistic approach to planning. They’re making sure clients’ financial (and often, non-financial) needs are met, from tax and estate planning to banking and insurance needs.

Of course, advisors typically aren’t qualified or even legally allowed to provide much advice in those areas. That’s where their centres of influence come in. This approach has many benefits for all parties, with seemingly few drawbacks.

For advisors, the main advantage may be the distinct competitive edge that comes with being able to offer solutions to clients beyond investment advice.

Being seen as an essential resource by clients also strengthens the relationship, improves retention rates and maybe even generates some referrals.

“I referred a client to a mortgage broker recently,” says Linda Shick, vice president and associate portfolio manager of Macquarie Private Wealth.

“[And while] the benefit to me was solely one of satisfying the client’s need, it provided huge peace of mind to her. She was very nervous about the transaction and I think it just cemented [our] whole relationship. She knows I’m there for her, and you hope she tells that story to someone else.”

“It really enhances the relationship,” adds Paul Gleeson, a financial planner at Nicola Wealth Management. “We have close to a 99% client retention rate.”

But many say the benefits go beyond any competitive advantage.

For most advisors, and particularly those working with high-net-worth clients, it simply makes sense to be in close contact with the other professionals a client works with, because financial planning encompasses so many aspects of a client’s life besides their investments.

Once a year, Del Sorbo says, he organizes a meeting with the client and his or her banker, lawyer and accountant.

“The idea is that we’re going to spend an hour with our client, doing a year-end review and brainstorming,” he says. “And from that meeting, new and interesting ideas often come up.

“The major benefit,” he continues, “is that the client really does win on a couple of levels. First, interesting ideas come up when you put four people in a room who know the client well but from a different angle—ways to invest in a more tax-efficient manner, for example. And second, the client really has peace of mind. He or she knows all the different parts are talking to each other and things aren’t slipping through the cracks.”

Advantages for all

Look at it from the client’s perspective, says Harp Sandhu, an investment advisor at Macquarie Private Wealth. “If you’re paying all these people to help you, they should be working together.”

And when these experts aren’t working together, oversights can happen. For example, an advisor could suggest an investment that puts a client into the next tax bracket or activates a pension clawback. If he or she doesn’t have a conversation with the client’s accountant before making that investment, the client may not realize the implications until the next tax year—and by then it’s too late.

Sandhu sums up the major advantages of establishing strong centres of influence this way: “The biggest benefit is building fences around your clients; ensuring you’re looking after everything. They appreciate you for that and they’re going to stay with you. “But at the same time, it’s also avoiding those ‘My accountant just called and said the extra dividend income caused my pension to be clawed back’ situations, and ensuring that we do everything properly for our clients.”

The biggest advantage by far for clients, meanwhile, is peace of mind; they can rest easier knowing all their advisors are working together with their best interests in mind.

As Del Sorbo says, “I think we’re adding the most value for our clients where [our] relationship with their lawyer or accountant is a really good one. In other words, where I’ve got really good open communication—that’s where good ideas come from.”

And when it comes to providing peace of mind, centres of influence often extend far beyond the realm of tax lawyers, insurance brokers, accountants and bankers. Clients may sometimes even ask for referrals for contractors or other financially unrelated professionals when they don’t know where else to turn.

This is good, as the more a client relies on an advisor, the less likely he or she is to take his or her business elsewhere.

“We’ve had clients ask us for divorce lawyers,” says Sam Sivarajan, head of UBS Private Wealth Management Canada.

“I think our ability to help clients this way cements the relationship, but it’s an illustration of the degree of trust the clients have in us, to say ‘Look, I don’t know where to turn on this one, but you must have come across this either through your network or your clients’ network. Please help me out.’

“We’re glad to do it,” he adds, “because that’s what a true service-oriented firm should do, and it helps create a longer, deeper and more trusting relationship between the client and the firm.” Know your client

Also key to building successful centres of influence is knowing your clients and the types of referrals they’ll most likely need.

UBS, for example, works with a lot of entrepreneurs, so their centres-of-influence network includes first-class corporate advisory firms. They also work with many new Canadians, so they have referrals on hand for services recent immigrants might need.

“Referrals [for new Canadians] go beyond just accountants and lawyers,” says Phaby Utomo, regional manager, UBS Private Wealth Management Canada.

“What we see are parents who want to help their children get into good schools. Or we’ll find realtors to help them settle into [life in] Canada. What we do is help our clients settle in comfortably and establish a footing in Canada.”

Gleeson also sees value in enabling clients to act as centres of influence for each other. “If we have a client who we know is selling a practice or a business, and another client who’s interested in buying a certain practice or business, we could try to put them in touch with each other,” he says. “It’s about going beyond the technical stuff to enhance the relationship with the clients.”

Clients are your compass

Are there any drawbacks to the centre-of-influence approach? Most name only one: The potential of a referral “going bad.”

If a client gets poor results or service, he or she won’t be happy with the advisor who made the referral.

“Once you make that introduction, you’ve put your reputation on the line,” Del Sorbo says. “You need to make sure the people you’re working with are going to have your clients’ best interests in mind, are going to work hard for the clients, are going to do what’s right and are going to make you look good.”

But most advisors feel this risk is easily managed by developing relationships with professionals whose styles and approaches closely match their own.

“It just takes some time on the part of the advisor in making sure you’re comfortable with the people you refer business to,” says Del Sorbo.

One way to develop relationships with the right professionals is to reach out to existing clients who are happy with their current lawyer or accountant. Gleeson is a fan of this approach.

“If we’re looking to introduce a client to an accountant,” he asserts, “we want to know if the accountant has done quality work and has made our clients happy. When we refer a client, that referral reflects on us, so we want to make sure there’s a good fit.”

Using existing clients as a resource, Gleeson builds relationships with their accountants and gets to know them as individuals. He can then determine the level of service they deliver, their technical capabilities and their moral character.

Del Sorbo has also relied on existing clients to build his centre of influence.

“If my client has a lawyer or accountant they’re happy with,” he says, “I’ll ask to be introduced to [him or her], because it’s important when I’m managing investments that I know who [these other professionals] are. In that process, you meet interesting people you respect; and if they do a good job, they often end up being [part of] your centres of influence.”

Make the effort

With so many benefits to clients and advisors, and so few apparent drawbacks, why isn’t everyone relying on centres of influence to better serve clients’ needs?

“It’s not easy,” says Del Sorbo. “It takes time, effort and money to make these sorts of things happen. You have to engagepeople in other professions. You have to get to know them. We see their office, go through some scenarios with them, and ask them how they work with their clients. That’s time-consuming, so that can be a deterrent.”

And it can’t be easy anticipating the needs of a diverse client base.

Sivarajan, for example, once brought in a wine-banking expert for a client who was planning to buy a vineyard. He has also worked closely with third-party art experts, lawyers, and insurance brokers, because art is a significant investment for many of his clients.

The list of potential contacts one may need to add to a centres-of-influence network is seemingly endless.

But as Del Sorbo notes, “We’re here to give the clients peace of mind and to make their investing as easy as possible.”

Sandhu agrees. “Whenever I can help a client with something, I’ll help them. Really, I do care. I love building relationships with my clients.” He adds that he’ll often talk to new clients about his holistic approach, and they’ll tell him nobody’s ever done so much for them before.

“But if you’re not doing it,” he warns, “someone else is going to, and you’re going to lose the client.”

The downside of referrals

One drawback to the centre-of-influence approach, albeit a purely optical one, is that clients could mistakenly believe their financial advisor is handing out referrals in the hopes of getting referrals in kind.

Nicolas Del Sorbo, senior vice president and investment advisor of HSBC Securities (Canada), admits “one of the secondary benefits to making introductions is if that relationship is working well, the other professionals are going to be in the same boat as you are. They’re going to be looking for people to help them with their practice.”

But this is only the case if the other professionals are impressed with the advisor’s work. In a business built on trust, nobody is willing to put their reputation on the line just to make a few friends.

“We wouldn’t base giving our referral out on [receiving referrals in kind], because at the end of the day we want the client to be served,” says Linda Shick, vice president and associate portfolio manager of Macquarie Private Wealth.