Financial advisers have long believed that a high level of
client retention is the key measure of their practice’s success.
However, research conducted by Univeris indicates that this measure
no longer holds true and that reliance on it can have serious
consequences for an advisory practice’s growth potential.
No doubt the average independent financial adviser (IFA) would be
relieved to know that his or her clients are satisfied with the
level of service delivery. Unfortunately, in today’s market
satisfaction is just not enough, indicates a study undertaken by
Univeris.
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In the study, Univeris highlights that clients have a new set of
expectations, needs and desires determining their relationships
with their advisers. Failure to recognise that neither satisfaction
nor loyalty are enough to keep clients or get referrals can have a
significant impact on future advisery practice growth, warns
Univeris.
Based in Toronto, Canada, Univeris provides wealth management
administrative services to 20 major Canadian financial services
clients representing over 17,000 advisers. For its research
Univeris partnered with Advisor Impact, a specialist provider of
research and training in the US, Canadian and UK IFA markets.
Univeris’s study, Driving Higher Levels of Investor Engagement with
Financial Advisors in Canada, is multi-faceted, having drawn on IFA
client surveys conducted by Advisor Impact over the past four years
covering 70,000 respondents in Canada, the US and UK. Additional
insight was drawn from a 2008 study by Advisor Impact, Economics of
Loyalty which examined links between client satisfaction and client
profitability based on responses from 1,000 randomly selected
investors across the US.
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By GlobalDataProviding insight into the study Stephen Smith, Univeris’ senior
director of marketing explained: “We wanted to listen to investment
clients and hear their suggestions that will help to maximise the
value of the adviser-client relationships. We found that the old
notion of having satisfied clients is not enough to drive the
needed organic growth through referrals or acquiring more share of
wallet.”
He continued that the findings also highlighted the fact that
clients who have longevity with an adviser – long a key indicator
of client loyalty – can also question the relationship they have
with their adviser.
“Advisers cannot rest on former satisfaction or loyalty levels, as
research demonstrated that they need to proactively and
consistently define their service offering and continue to exceed
client expectations on service delivery,” Smith said. “The key for
advisers is to understand the new expectations of clients so they
can move beyond a focus of satisfaction to one of engagement where
deep relationships have long term focus and retention, and clients
are willing to provide referrals enabling organic growth.”
He added: “We worked with Advisor Impact to mine its sizable
database of adviser-client feedback from 2006 to spring 2009, to
find what clients are telling advisers about running their
businesses and why client engagement is the key to building a
future practice.”
He explained that the research showed that even though 95 percent
of clients indicated that they were satisfied with their advisers,
they were still not providing referrals. However, referrals did
occur only when investors were engaged with their advisers.
Univeris defines an “engaged client” as one who is not only
satisfied but among the most profitable when measured by propensity
to refer, by the scope of relationship (extending to other family
members), and by the number of services used of share of
wallet.
Communication with clients plays a vital role in developing an
engaged client, stressed Julie Littlechild, president of Advisor
Impact.
“Many clients have remained satisfied during recent markets,” said
Littlechild. “We believe that in these cases, the adviser has done
a better job of communicating the value that he or she delivers
above and beyond investment performance.
“When clients see their adviser as proactive in managing the
relationship and when they have a clear plan in place for the
future, they tend to see beyond investment performance, she
continued. “In the absence of understanding the value of advice,
they tend to be more strongly influenced by investment
performance.”
Notably, the desire for contact with their adviser – either via the
phone or face-to-face – varies from client to client. In Canada,
Advisor Impact’s research indicates that 14 percent of clients
require no direct contact while a small minority – 3 percent –
demand five or more engagements with their IFA annually. On
average, Canadian’s expect to conduct 2.6 plan or portfolio reviews
per year with their adviser.
The adviser’s guide
Precisely what steps should IFA’s be taking to build a practice of
engaged clients? Based on its study Univeris sets out a number of
key guidelines.
As a first step, IFAs must research and listen to what clients
want. In particular, current market conditions demand that advisers
look beyond client satisfaction to understand what the clients
really expect in order to connect at a deeper level to create a
fully engaged client practice.
As the next key step IFAs must define their service offering versus
market performance to each client. Referrals, notes Univeris will
come from engaged clients who understand a clearly communicated
service offering and want to brag to friends of an adviser’s
service and knowledge.
As a final and significant guideline for IFAs, Univeris stresses
that “there is no room for guessing.” Engaged clients demand that
advisers have objective information for what they need, want and
expect with an obvious process in place to deliver information to
make educated decisions.
