Clients are leaving advisors for better advice (and relationships)

It's a dog-eat-dog world for financial advisors, at least when it comes to client retention and loyalty. Several advisors say conversations and regular guidance should always be top of mind when it comes to maintaining relationships with clients.

Recent findings from the Cerulli Edge U.S. Asset and Wealth Management Edition show clients can be quick to switch to a new financial advice provider if they’re presented with an investment with a stellar performance record at a time when they’re feeling underwhelmed by the performance of their current provider. 

Autumn Knutson knows this all too well. After all, the founder of Styled Wealth, an independent firm, has been on the receiving end, landing clients who switched from other advisors. While it’s unfortunate for the previous advisor, it means Knutson gets the opportunity to have long relationships with her new clients.

“It's one thing to communicate the right thing or to tell someone knowledge that you may have as an advisor,” she says. “I think it's an entirely different experience when you effectively collaborate, and team together. It's having different tasks, perhaps of implementations of things that are more industry-specific for the advisor. But on the client side, we need to understand from them very deeply, what are their goals and what are their values?”

Advisors feel as if they can hold on more clients by providing them with better returns and better outcomes from an investing perspective, Knutson added. However, she thinks there's something missing related to the full foundation of what an advisor-client relationship might have offered in the first place. That can result in the client ditching their advisor for a better one.

“I truly think a lot of advisors end up missing that relationship management,” she says. “Advisors that are more tenured are meeting with clients once or twice a year, then they speak more on the investments and performance, but [clients] end up talking about things we can't control.”

Nicholas Gertsema, CEO and wealth advisor at Gertsema Wealth, said clients can and will consider switching advisors when they realize an advisor’s services are about more than just investing their money.

“I used to get excited when we'd do a deep dive with prospects, and they'd comment that their current advisor never asked them any of these questions. I thought that we were about to present so much value that them choosing to make a move would be easy. I had never put myself in their shoes. By showing value and building a plan around them, I was unintentionally uncovering missed opportunities and undermining the relationship they had with someone that they trusted,” he wrote in an email.

If clients are unhappy with their advisor, it’s likely due to the services the advisor is offering, noted David McBee, financial advisor at Concurrent.

“I do believe that a lot of our industry has been commoditized around mutual fund models, asset allocation models, and a lot of the performance across firms is going to be somewhat similar,” he said. “Clients that are with a private client relationship do expect service.”

McBee said where he provides the most value to his clients is keeping them from doing the wrong thing at the wrong time.

“Keeping a client from making an emotional decision during market volatile times, talking through the situation with them and helping them make good decisions, is where we earn our fee,” he said.

“Oftentimes, it's really hard to consistently outperform the market, but if you can keep a client from moving to cash at the bottom of a bear cycle, and you can keep them adding cash during those bad periods, or maybe even talking them out of adding cash during high market periods, those periods of advice will not only help your client, but they will also solidify your client relationship because they will realize that you're providing them the right advice at the right time,” McBee said.

Carla Adams, certified financial planner at Ametrine Wealth, notes that she’s had extremely high client retention rates because of the relationships she’s formed with her clients.

“I'm very upfront when meeting with prospective clients and starting new client relationships that I aim to grow client portfolios with market-like returns and by no means even try to beat the market because I don't believe that anyone consistently can. For those who want higher returns, they have to take on more risk and the less risk that they are willing to take on, the lower the returns they should expect,” she wrote in an email.

McBee added that it’s not incorrectly guiding clients when it comes to market volatility, but rather not providing them with guidance at all, that could also lead to a client leaving an advisor.

“A lot of advisors will avoid conversations during difficult periods. It is hard to go head on and face client conversations when the clients are very emotional. But in my experience, it is best practice to be as proactive as possible to help calm your clients’ fears,” he said.

Rather than talking about investments, which can sometimes be worrisome to a client, an advisor’s holistic approach can ultimately be what saves the relationship, Knutson noted.

“If there's not a miss in that [holistic approach], there might be a miss in the communication,” she said. “I do know many advisors who provide excellent services, but they miss communicating all the value to help a client understand how they're better off for having worked with them, so you're leaving the client to fill in those gaps.”