When your firm costs you clients, Part 1

Advisers can't stand to lose accounts. When I meet with Advisers around the country, virtually all of them are able to tell me with surgical precision how many accounts they have lost over the course of a year. More specifically, they can tell me the circumstances behind the losses. Some of these reasons are benign; there is a certain amount of "shrinkage" that every Adviser's book goes through over time. Clients move away and want to deal with someone local, clients move their business to a brother-in-law or college buddy who becomes an Adviser, clients get divorced and die: all of these reasons are outside the Adviser's control. To the extent that an Adviser can anticipate these changes he or she will be able to mitigate the damages or even prevent the loss. This is all regrettable, but experienced Advisers expect a degree of fallout every single year. They know that if they are not seeking new clients, then their business is shrinking. But what makes Advisers crazy with anger and makes them call me is when their client attrition is caused by something their own firm does. Here is the first in a short series about “Very Big Firm Angering Adviser”: Joe Big Producer runs a team that produces over $5 million with $600 million in assets. He prides himself on controlling his client experience. When a client calls in, he or she knows who on Joe's staff is best to handle a problem and Joe knows when to step in. On the investment side, Joe runs a portion of the portfolios himself and has a widely admired investment performance track record. As a Merrill Adviser, Joe was always suspicious of referring business to the lending arm of Bank of America because then the client experience was out of his control. "I knew that clients occasionally had lending needs, so not asking them about it was leaving money on the table and also not servicing them for all of their finances. But I was nervous, because once I referred the case to lending, the client experience was out of my control." One of Joe's largest clients, with $17 million at Merrill, needed a substantive loan. "His [the client's] experience was awful. The rate was not competitive, but worse than that, the responsiveness of the staff was an embarrassment." To be fair, Joe told me that he has had many positive experiences referring business to B of A lenders. But in this case, he lost the account. "A competing institution beat the rate, showed that they wanted to win the business, but only if the client moved his investment portfolio over to them too. Not only did I lose the loan, but I lost the client." Ouch. Instead of the accretive revenue that the loan would give the firm and the Adviser, the entire relationship with its evergreen fee based revenue, along with its history of referrals, is now somewhere else. “Cross selling” should not be a pejorative phrase; more rounded service to a client, more revenue to the firm, right? But what are the risks when the customer service is no longer in the hands of the Adviser and his or her team? Is it possible for a Very Big Brokerage Firm to cross sell without adversely affecting the client experience? Next week: Very Big Firm substitutes bad technology for good common sense.