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The Unfaithful Client

StratiFi Technologies Inc

Your client is worth $25 million, yet you only manage a small portion of that total. Sound familiar? The issue of clients with accounts spread across multiple advisory firms often arises during discussions of a firm’s billable assets. Yet, the headaches caused by these “unfaithful” clients extend well beyond fees. Clients with more than one advisor are more likely to question short-term performance (often prompted by their other advisors), create problems with cohesive year-end tax planning, and ultimately are less likely to stick around.

So why take on these clients? Unfortunately, we only have our industry to blame. Instances of clients having multiple investment advisors rose after 2008, following the unveiling of Madoff’s epic Ponzi scheme and the onset of the Great Financial Crisis. Investors were (and still are) rightfully skeptical of investment advice and wary of putting all of their eggs in one basket. Rather than blame consumers, the right question to ask is how can advisors structure client relationships to win back that loyalty?

Provide a Dedicated Team of Specialists

According to research published in the Harvard Business Review, clients who work with teams of specialists are more likely to stay loyal to one firm than when they work with generalists. Specialized wealth advisory services have been enjoyed by high net worth families for generations, but are increasingly in demand by investors of all asset levels, according to research from Deloitte Consulting LLP. Their study found that today’s investors value holistic advice on achieving multiple, often conflicting, goals through a range of investment and funding strategies. Structuring your firm to meet these needs internally ensures that clients no longer have to spread their wealth between advisory firms to access disparate strategies. Keeping it all in-house also means you can provide guidance based on a consolidated picture of your client’s wealth and importantly, their exposure to risk.

At wealth advisory firms, teams may consist of three or more individuals depending upon client complexity, with a lead advisor bearing ultimate responsibility for the relationship. Some of the more successful teams may include a senior investment manager, a retirement planner, an accountant, a real estate specialist, one or two junior advisors, client service support staff, and perhaps even some traders. At Polk Wealth Management, a New York-based group with the top ranked wealth advisor in the country (per Barron’s), their teams also include experts in family governance who provide counsel and educational services for younger generations.

Smaller advisory firms without the depth and resources of a firm like Polk may be able to mimic the team service model by tapping into a trustworthy referral network of like-minded professionals or forming a multi-advisor partnership.

Enable the Side Hustle

Many young professionals value the freedom to express, test, and independently pursue their investment views, particularly those that work in the financial or technology industries. Five of every 10 Millennial investors recently surveyed by Accenture said they would never take advice from their financial advisor without first consulting another source. Digital wealth management platforms are a fantastic solution for this need. Not coincidentally, this younger demographic also tends to be the primary adopters of new financial technology products.

One way to retain the loyalty of younger clients is  discussing their desire to manage a portion of their money, and then collectively setting the boundaries and objectives of this outside, self-directed account. Considering clients’ high expectations for digital tools, firms should not fear giving more control to their clients while emphasizing the role of advisors (and the entire advisory team) as decision validators based on their consolidated wealth picture.

Don’t Do These Things and Explain Why You Don’t

Let’s face it: clients should be skeptical of the financial industry. There are too many Madoff-like examples to count. Here are just a few of the “bad advisor” habits to avoid:

  • Don’t talk down to clients—be intellectually honest in your performance discussions and investment decisions.
  • Don’t constantly churn accounts—performance chasing is a loser’s game and the tax consequences will nearly always guarantee that your client’s accountant will provide them with a short list of tax-savvy competitors to consider.
  • Don’t push insurance products or exclusively high-fee investments—today’s investors are on to that game and know that low-fee options are plentiful.

Ultimately, the key to earning your client’s trust and loyalty comes down to the way you conduct your business. The greater the transparency with which you discuss your management of a client’s wealth, the better off you’ll be.