Over Time, Loyalty Increases


Let’s consider the topic of loyalty as it relates to the relationship between investors and their financial advisors.

Loyalty is a significant characteristic advisors try to create in their client base, but investors have their own definitions of advisor behavior that cultivates loyalty, as well as the behavior that indicate investors are loyal to their advisor, such as referring their advisor to others (Note: some investors do it, some investors don’t, and their reasons for their behavior either way are scattered).

Spectrem’s study Advisor Relationships and Loyalty: What Makes A Client Loyal? examines how investors feel about their personal loyalty levels, how loyal they are to their current advisor, what cultivates loyalty in an advisor, and the role trust plays in the relationship. One characteristic in investor behavior that indicates loyalty is the amount of time the investor-advisor relationship has existed, or lasted. 

It is certainly easier to remain with one financial advisor over time rather than transfer accounts to another advisor, but successful advisors are able to keep their clients satisfied year after year, and satisfaction certainly garners loyalty among the client base. A satisfied investor is likely to stay with the advisor who performs satisfactorily.

The age of the investor obviously plays a role in how long he or she has been with their advisor.  For example, among Baby Boomers, 33 percent have been with their advisor at least 15 years. But that indicates that two-thirds of Baby Boomer investors are in a relationship with their primary advisor that is, existentially, relatively new. Assuming a Boomer is at least 60 years old, two-thirds of Boomer investors started their advisor relationship when they were in their mid-40s or later. Did they have advisors before that to whom they felt no loyalty, or who did not perform in a manner that precluded finding advice elsewhere? 

There are a variety of reasons an investor would stay with an advisor over a long period of time, and satisfactory rate of return is certainly one of them. Also, many investors like to feel comfortable communicating with their advisor, or prefer advisors who go out of their way to stay in touch, and those are two other factors that could produce a long-term relationship.

The benefits of a long-term investor-advisor relationship includes the knowledge of details about your particular financial situation that make your investment decisions unique. Family matters, health matters, occupational matters all play into the relationship with an advisor, and having an advisor who knows all the ins and outs of your personal life that impact investment decisions certainly makes it easier to discuss when those particulars change over time.

One characteristic of client behavior that seems to indicate loyalty is the percentage of investable assets under management of their financial advisor, and the loyalty study shows that the longer an investor works with an advisor, the more assets they turn over for management. As with other topics, a long-term relationship lends itself to a stronger bond, and an increase in assets under management is a sensible indication of loyalty.

The length of relationship also plays a role in whether an investor stays with his advisor in the case the advisor chooses to move to a different firm. Those investors who would move with the advisor increase from 42 percent for the first-year clients up to 64 percent for those who have been with their advisor for 15 years or more.

Maintaining a relationship with an advisor appears to be a good way to make the most of the relationship, and that is the point of having an advisor in the first place: to make the best of the financial situation you are in.