Neutralizing a Client’s Negative External Influences


My previous blog considered service expansion (in the form of professional collaboration and an adviser’s own robo-adviser option) as a competitive tactic for the small- to mid-sized advisory firm to win new business at both the high- and low-ends of the market. Such wins are essential for any firm to realize its growth objectives.

However, since nearly all high net worth investors in any local market have one or more advisory relationships, one firm’s win is another’s loss. Even firms with strong operations, effective client communication programs and committed professionals face external forces that can negatively shape clients’ opinions and open the door to competitive incursions.

Can You Control the Rain?

According to the Futurewealth Report 2014 from Scorpio Partnership, NPG and SEI, “good investment performance” is the most often cited reason for clients to stay with an adviser in the core net worth segment of $500,000 to $4 million. This is consistent with EY’s 2014 Wealth Management Survey that concludes, “Both clients and advisers rank portfolio performance as the top factor driving client retention and attrition.” Portfolio performance, so hinged to economic and geopolitical forces, sits outside the direct control of an adviser. This is akin to a farmer’s dependence on the amount and timing of rain in order to have an abundant crop.

Is It Safe to Fly?

Cerulli (2013) has found that the number of advisory relationships is increasing among high net worth investors as a crude diversification method in which the incumbent adviser is not necessarily being fired as much as a client gives new assets to other advisory relationships.

EY’s 2014 survey notes that the No. 1 reason for a client signing on with an adviser is “firm reputation/trust.” The 2013 CFA Institute and Edelman Investor Trust Study concluded, “Though it exists, investors’ trust in the [global] investment management industry is fragile [and] retail investors are less trusting of the industry than their institutional counterparts (51 percent versus 61 percent, respectively) … [and just] 44 percent of U.S. investors.”

When an airplane crashes, questions arise about the safety of air travel regardless of an individual airline’s own safety record. While your firm may operate at the highest trust and care/concern tier, whenever headlines shout about an adviser cheating and/or stealing, clients ponder: “Could it happen to me?”

Protecting the Home Front

Although it’s impossible to control all the risks threatening a relationship, there are three tactics that, if done, will be countervailing forces to outside influences on your clients’ satisfaction and loyalty.

1. Controlling the Plan Is a Competitive Barrier

The EY wealth management study uncovered a surprising enlightenment shared by clients and advisers: the wealth plan is important. For clients, holistic goal-based planning was the No. 1 trend (42 percent) influencing where assets are invested. Advisers ranked this No. 2 (53 percent) as a trend for future business growth, just behind generational wealth transfers (see No. 3 below).

Tactical priority: A strong and comprehensive wealth plan not only defines the inputs that form the investment and wealth program, but it sets client expectations; this gives a competitor much less content to attack.

2. Emphasize Wealth Protection

Because your clients view “good” investment performance as a key relationship driver, the greatest exposure to your client base is market declines. A well-articulated investment program focused on wealth protection builds from this truism:  you can’t create wealth unless you preserve it first (see “Wealth Protection as a Practice Strategy”).

Tactical priority: Form a strong, fee-efficient portfolio core and install satellite investments that rank high in downside protection.

3. Get to Know the Adult Children

In Schwab’s 2014 Independent Adviser Outlook Study, only 16 percent of advisers had routine contact with clients’ children. Whenever headlines tell of an adviser cheating or stealing, expect that a client’s children will consider if something similar could happen to their mom and dad.

Tactical priority: With your client’s permission, set up quarterly electronic contact with the children, invite children to client education events and include a generational agenda item in the annual review (for example, even if the children do not attend, mom and dad will have content to form their own words and emphases during later family discussions).

Advisers are trained as risk managers, and this expertise is ably delivered in portfolio design, investment selection, insurance programs and plan monitoring. Too often, though, the adviser fails to address external risks to his or her own firm that left unchecked, imperil the firm’s growth potential.

Kirk LouryKirk Loury
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey

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