Back to Basics: Client Relationships

A new school year is starting, and kids are going back to the basics—trading summer camps for classrooms, skateboards for school supplies and video games for textbooks. Like these returning schoolchildren, investment advisors are also going back to basics this year to help them navigate the current market environment. In this month’s article, we will examine one of the most important basic skills getting renewed attention: client relationships.

Advisors’ return to relationship basics is one of the largest shifts we’ve seen in 10 years of collecting data through AdvisorBenchmarking. The 2008 market crisis has advisors focusing on fundamental issues such as regaining assets and effective client relationship management. Advisors ranked “relationship management” as the most important area for running an advisory firm, according to almost half (45%) of survey participants. They also named finding new clients (88%) and communication with clients (79%) as the most challenging areas of their business. In other words, advisors are struggling with some of the most basic aspects of their business: client relationship management and client communication.

The Most Important Areas When Running an Advisory Firm (2008)

Relationship Management is the Key for Referrals
The advisory business is a people business, and relationship management is a critical component of an advisor’s job. People prefer to work with someone they like at the best of times. In light of the market meltdown, worried clients will increasingly demand expert interpersonal skills as well as excellent financial management from their advisors. One of the major challenges for investment advisors today is how to attract new clients while retaining current ones. For both jobs, good relationship management is key.

Top Sources for Increasing AUM

With a tough 2008 behind us, many dissatisfied investors are shopping for new advisors—and asking friends and family for suggestions. There is tremendous opportunity now to sign on new clients by actively seeking referrals from your existing clients. Most (86%) professionals believe that their top source for increasing assets under management (AUM) in the next five years will be referrals from existing clients—continuing the trend we’ve seen in the past. A 2007 Schwab advisor study found that 90% of the clients of independent Registered Investment Advisors (RIAs) would recommend their advisor to a friend or family member. In our 2008 survey, advisors reported gaining more clients by actively seeking referrals from their current clients than they had in 2007—12% compared to 5%. However, many advisors confided to us that they are uncomfortable with soliciting referrals from clients. They don’t feel confident with the process and don’t have formal referral programs in place.

How can you help yourself solicit referrals and attract new clients, as well as manage existing client relationships? Start by polishing your communication skills. To go back to communication basics:

• Ask questions and listen carefully.
• Articulate your ideas and your advice with conviction to inspire a positive client response.
• Find meaningful ways to assess and address clients’ core values and concerns.
• Sharpen your ability to interact with people. Try a communications class to build your listening and communication skills.
• Consider surveying your clients on their communication preferences—in person, by phone or through email. While younger clients may prefer e-communication, older clients may prefer more traditional phone and in-person contact. However, email or web site surveys may enable you to reach your entire client base faster, followed up by phone calls from you and your team.
• Consider a client satisfaction survey that assesses how well you’re doing in all aspects of your practice, such as your responsiveness, proactiveness and performance. The answers can help you focus your relationship management strategies to ensure client loyalty and stability.
• Consider putting an emergency communication plan in place so that the next time you need to reach out proactively to clients, you’ve got a foundation in place to facilitate it.

The basic fact is this: Clients can be your advisors too. They can tell you what they need from you to remain satisfied and loyal customers. They can advise you on prospective new clients who are dissatisfied with their current investment advisors. Good client communication and relationship management are your keys to tapping client advice—and taking advantage of opportunity in the investment advisor market today.