Most financial advisors work for firms which employ many advisors. When an investor signs up with a firm, he or she is matched with a primary advisor, but the products and services that advisor offers are determined by the provider firm.
When asked who they work with in financial matters, most investors would say “I work with a guy at (name of firm).” The name of the actual primary advisor would probably come up if the investor is offering a recommendation.
While there are financial advisors who work for the same firm for their entire professional lives, a large percentage of advisors move from one firm to another during their careers. When that happens, their clients must make a choice – to begin working with another advisor within the same firm their advisor was with originally, or to take their portfolio from the original firm and transfer it into the new firm, in essence following their advisor from one firm to the next.
The question is whether most investors stay with their firm or move with the advisor? And, what factors determine which way investors go?
Spectrem’s study Client Loyalty Among Affluent Investorsanswers that question. Not only does the study ask investors about their loyalties towards advisor versus firm, it compares a consumer’s loyalty in advisors with their loyalties with other professionals such as doctors, accountants and lawyers.
The research shows that consumers are evenly split between being loyal to their advisor or to their firm. For investors, it is a very real tug-of-war. However, there is demonstrative insights in the study on how investors make that call.
Time is a key element in the loyalty issue, and it is one reason retention is so important. The older an investor is, the more likely they are to be loyal to their advisor. The same is true as wealth increases; investors with a net worth over $5 million have the greatest loyalty to their advisor. As a result, the longer you hold on to a client, the longer you will probably hold on to that client.
Advisors must guard against taking any investor for granted. Over time, a relationship can get stale, and advisors should do what they can to refresh a long-term relationship in order to maintain the loyalty that has caused that investor to stick with his advisor for that lengthy period of time.
The “competition” that exists between advisor and provider only matters when advisors leave one firm and go to another. If an advisor’s relationship with the firm for which he works is solid, the question of switching firms when the advisor leaves is not likely to come up.
However, when asked what promotes loyalty in an investor, it is advisor performance that comes up most often. Affluent investors rate service as the No. 1 way to build client loyalty, followed by an investment track record with no problems.
If an investor has worked with more than one advisor within the same firm, it is fair to guess that the investor likes the services the provider offers but is looking for a solid personal relationship with the advisor.
The Spectrem study on client loyalty includes a great deal of information related to how firms can promote loyalty within its client base. But it also explains one aspect of the investor-advisor relationship that is unique to that service in comparison to doctors, lawyers, accountants and other service providers: referrals.
Investors are not overwhelmingly likely to refer their advisor to another investor. Only about 60 percent of affluent investors say they have referred their advisor, and those that do not refer their advisor say they don’t feel it is their place to tell others what to do.
But a significant portion of investors who have not referred their advisor to others say they have not done so because it just never occurs to them to do so.
There is no harm in asking the clients whom you believe to be satisfied to offer your services to friends, family or co-workers. It is not a behavior advisor should demand of their clients, but a simple suggestion could lead to an extra client or two.
Asking for referrals can also build client loyalty. An investor who is willing to give out your name is one who plans on sticking with you.