Losing clients can be disheartening, but it’s an inevitable part of the advisory business. Even the most skilled advisors can’t retain every client indefinitely, believe it or not.
Still – whether your goal is to expand your business or excel at client retention, it’s crucial to address a fundamental question:
Why do clients choose to terminate their advisory relationships?
A comprehensive study by Financial Advisor Magazine delved into the common rationales cited by clients for parting ways with their advisors. Here are the primary five documented explanations why financial professionals find themselves on the receiving end of a client breakup.
Spoiler alert: The most common reason they leave? Lack of communication
Around 23% of clients reported that their advisors made promises they couldn’t fulfill. Traditional methods of promoting value, such as boasting about expected returns, often backfire. For instance, stating a target return of 8% without considering the broader context can create unrealistic expectations. Given that the market achieves its average performance only about once every 25 years, this approach carries significant risk.
Poor Investment Performance
Around 34% of clients cited poor investment performance as a reason for parting ways. This is closely tied to the first point. When advisors set unreachable targets, it’s unsurprising that these targets are often missed. Clients grow disappointed when their actual returns fall short of what was promised, leading to questions like “Why am I not seeing my expected returns?” Conversely, if the market outperforms their portfolio, they may wonder why their advisor’s strategy isn’t keeping up. It’s a lose-lose situation that often ends with termination.
A whopping 44% of clients expressed dissatisfaction with their advisor’s response time to their calls. In an age of constant connectivity, managing the influx of client inquiries is essential. While it’s impossible to eliminate all inbound inquiries, effective coaching can reduce the volume of frantic calls stemming from media-driven investment anxieties.
Misunderstanding of Goals
More than half, or 51%, of former clients indicated that their advisors failed to comprehend their financial objectives. While this might seem like a basic aspect of wealth management, a significant portion of clients still felt their advisors didn’t grasp their retirement goals and investment aspirations. This discrepancy could be attributed to the evolving landscape of client expectations, where investors demand advisors who align closely with their fiduciary standards.
Lack of Communication
The most common reason clients bid farewell to their advisors, accounting for 72%, was the advisor’s failure to maintain regular communication. This is an encouraging revelation because it signifies a relatively simple aspect to address. Advisors who proactively engage with their clients, routinely check their financial sentiment, and systematize their communication strategies are more likely to build lasting relationships.
Therefore, nurturing clear and consistent communication, coupled with behavioral coaching, is key to retaining clients over the long haul. Contact our team at Oak & Stone today for more on ho to better leverage communication opportunities with your clients.