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Many clients are return-focused. As they should be. That’s not lost on advisors. As a result, many advisors believe that portfolio performance is the end all and be all of client satisfaction.
Obviously, subpar returns aren’t going to create happy, devoted clients, but above-average performance over the long-term goes a long way toward improving client retention. Returns are important – that’s never going to change, but there’s more to the client retention/satisfaction story.
Investment management acumen, or lack thereof, isn’t the biggest reason clients reduce or eliminate relationships with an advisor. Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. Some studies indicate it’s roughly one in 10 clients that fire advisors did so solely due to portfolio performance.
All of that implies clients have priorities beyond an advisor’s ability to notch impressive returns, one of which is knowing that the advisor is trustworthy. For many clients, trust actually trumps portfolio performance and that’s a point advisors cannot afford to ignore.
Establishing Trust Is Paramount
It’s easy to quantify the importance of trust among clients. A recent study by CapIntel indicates 61% of clients believe that a breach of trust is a reason to terminate a relationship with an advisor. That compares with 54% that said the same thing regarding slack returns.
“Similarly, when selecting an advisor, beyond investment performance, investors say trust is the most important quality they look for, with more than seven in ten (72%) indicating trust is paramount when considering a financial advisor,” according to CapIntel. “Meanwhile, about half of investors indicate that investing experience (50%) and offering a holistic view of their financial picture (46%) are also important qualities in an advisor.”
Building trust with clients is like any other client-related endeavor in that there are effective and ineffective ways to go about it. The good news for advisors is that the steps to establishing aren’t complicated and require little in the way of expended time.
“While trust may seem fundamental—even table stakes—for advisors, achieving it might be more challenging than it appears,” adds the research firm. “The survey revealed that various factors can either build or diminish trust, from understanding a client’s financial health and goals (46%) to clear and accurate information about financial performance (46%). Investors indicated that establishing trust involves more than just the big picture; the small details are equally important.”
Build the “T” with More of the “C”
Upon losing clients, astute advisor take stock of what went wrong. Chances are they’ll find the situation could have been avoid with better communication. Looked at differently, many clients perceive a communicative advisor to be a trustworthy advisor.
Preferred method of communication varies from client-to-client. Some are old school and like in-person meetings or phone calls. Others are more tech-savvy and are satisfied with digital communication. Point is clients want communication and it’s an easy avenue for building and enhancing trust.
“Almost three-quarters (73%) of millennials are communicating with their financial advisors digitally, compared to around two-thirds (65%) of Gen X and half (53%) of boomers,” concludes CapIntel. “Among all generations surveyed, millennials indicate the strongest preference for communicating digitally (69%), significantly higher than Gen X (57%) and boomers (43%). Additionally, millennials place more value on advisors being technically savvy, with 17% ranking it as a top quality in an advisor, compared to just 7% of Gen X and 5% of boomers.”